Pincus Associates uses the allowance method to account for bad debts. 2024 was the first year of operations for Pincus, so it had a $0 opening balance in its allowance for uncollectible accounts. During 2024, Pincus provided a total of $188,000 of services on account. In 2024, the company wrote off uncollectible accounts of $7,600. By the end of 2024, cash collections on accounts receivable totaled $159,600. Pincus estimates that 5% of the accounts receivable balance at 12/31/2024 will prove uncollectible.

Required:
What journal entry did Pincus record to write off uncollectible accounts during 2024?
What journal entry should Pincus record to recognize bad debt expense for 2024?

### 1. Journal Entry to Write Off Uncollectible Accounts

When a company writes off uncollectible accounts under the allowance method, it reduces both the Accounts Receivable and the Allowance for Uncollectible Accounts. Here's the journal entry Pincus would have recorded to write off $7,600 of uncollectible accounts in 2024:

**Journal Entry:**
```
   Debit: Allowance for Uncollectible Accounts    $7,600
   Credit: Accounts Receivable                    $7,600
```

This entry removes the uncollectible accounts from the Accounts Receivable balance and adjusts the Allowance for Uncollectible Accounts.

---

### 2. Journal Entry to Recognize Bad Debt Expense

The bad debt expense is estimated at 5% of the accounts receivable balance as of 12/31/2024. To determine the amount of bad debt expense, we first need to calculate the ending accounts receivable balance:

**Accounts Receivable:**
\[
\text{Accounts Receivable = Services on Account - Cash Collections - Write Offs}
\]
\[
= 188,000 - 159,600 - 7,600 = 20,800
\]

Now, 5% of this ending balance is estimated to be uncollectible:
\[
\text{Bad Debt Expense} = 20,800 \times 0.05 = 1,040
\]

The journal entry to record bad debt expense for 2024 is:

**Journal Entry:**
```
   Debit: Bad Debt Expense                        $1,040
   Credit: Allowance for Uncollectible Accounts   $1,040
```

This entry increases the allowance for uncollectible accounts to reflect the estimated bad debts and recognizes bad debt expense on the income statement.

---

Would you like further details on any of these steps or explanations?

### Follow-up Questions:
1. What is the purpose of the allowance method in accounting for bad debts?
2. How is the percentage of uncollectible accounts estimated?
3. Why is the Accounts Receivable balance reduced rather than adjusting expenses directly when writing off bad debts?
4. How would Pincus adjust its estimate if actual bad debts in the future differ significantly from the estimated percentage?
5. What impact do bad debt expenses have on a company's financial statements?

### Tip:
Always ensure to review estimates for uncollectible accounts periodically to maintain accurate financial reporting.

Explore how to record journal entries for uncollectible accounts and bad debt expense using the allowance method, with a detailed example from Pincus Associates’ 2024 financials. Calculate the bad debt expense based on an estimated 5% uncollectible rate and understand essential accounting principles.

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