Estimation vs. Direct Write-Off of Bad Debts
Response to the following problem:
The Blunt Company makes credit sales of $21,000 during the month of February 2010. During 2010, collections are received on February sales of $20,400, accounts representing $600 of these sales are written off as uncollectible, and a $100 account previously written off is collected.
Required
Prepare the journal entries necessary to record the preceding information if (1) bad debts are estimated as 3% of sales at the time of sale, and (2) the bad debts are recorded as they actually occur.