Green Valley Steel had sales of $1,000,000 and collections of $760,000, leaving a balance of $240,000 in accounts receivable as of December 31, 2021. Analysis indicates it expects to collect $200,000 of its accounts receivable. How would it set up an allowance for uncollectible accounts

This is set up by debiting the bad debt expense $40,000 and crediting an allowance for uncollectible receivables $40,000.

Explanation:

When sales are made and cash is yet to be collected, credit sales and debit accounts receivable.

Where an assessment is carried out and part or all of the amounts expected to be received ( as recorded in the accounts receivable) become doubtful, an allowance is created by crediting allowance for doubtful debts and debiting bad debts expense.

Allowance for uncollectible accounts amounts to

= $240,000 - $200,000

= $40,000

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