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On December 31, 2021, when its Allowance for Doubtful Accounts had a debit balance of $1,534, Indigo Corporation estimates that 8% of its accounts receivable balance of $74,100 will become uncollectible and records the necessary adjustment to Allowance for Doubtful Accounts. On May 11, 2022, Indigo Corporation determined that B. Jared’s account was uncollectible and wrote off $1,171. On June 12, 2022, Jared paid the amount previously written off. Prepare the journal entries on December 31, 2021, May 11, 2022, and June 12, 2022.

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Answer and Explanation:

The Journal Entry is shown below:-

1. Bad debts expense Dr, $7,462

       To Allowance for doubtful accounts $7,462

($74,100 × 8%) + $1,534

(Being bad debts expense is recorded)

2. Allowance for doubtful account Dr, $1,171

        To Accounts receivable $1,171

(Being allowance for doubtful account is recorded)

3. Accounts receivable Dr, $1,171

        To Allowance for doubtful accounts $1,171

(Being accounts receivable is recorded)

Cash account Dr, $1,171

   To Accounts receivable $1,171

(Being cash is recorded)

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