Johnson Company calculates its allowance for uncollectible accounts as 5% of its ending balance in gross accounts receivable. The allowance for uncollectible accounts had a credit balance of $30,000 at the beginning of 2021. No previously written-off accounts receivable were reinstated during 2021. At 12/31/2021, gross accounts receivable totaled $500,100, and prior to recording the adjusting entry to recognize bad debts expense for 2021, the allowance for uncollectible accounts had a debit balance of 55,000.

Because the company has a debit balance in that account it's necessary to register an entry that compensate the DEBIT value and reflect A CREDIT estimated as 5% of account receivable.

Allowance for uncollectible accounts 5% of its ending balance in gross accounts receivable

Initial Balance

Dr Accounts Receivable $ 500,100

Dr Allowance for Uncollectible Accounts $ 55,000

Assuming 5% of accounts receivable, the journal entry:

Dr Bad Debt Expense $ 80,005

Cr Allowance for Uncollectible Accounts $ 80,005

FINAL Balance

Dr Accounts Receivable $ 500,100

Cr Allowance for Uncollectible Accounts $ 25,005

If the company applies the allowance method, it means that the account

Allowance for Uncollectible Accounts must show as balance the 5% of accounts receivables as CREDIT.

Because the company has a debit balance in that account it's necessary to register an entry that compensate the DEBIT value and reflect A CREDIT estimated as 5% of account receivable.