Question

An aging of a company's accounts receivable indicates that $4920 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $940 credit balance, the adjustment to record bad debts for the period will require a debit to Bad Debt Expense for $4920. credit to Allowance for Doubtful Accounts for $4920. debit to Allowance for Doubtful Accounts for $3980. debit to Bad Debt Expense for $3980.

Answer 1

debit to Bad Debt Expense for $3,800

What is Bad Debt Expense ?

When a receivable is no longer collectible because a customer is unable to fulfil their obligation to pay an outstanding debt due to bankruptcy or other financial problems, a bad debt expense is recognised.

If a company with $2,000,000 in sales expects 2% of sales to be uncollectible, their bad debt expense would be $40,000 ($2,000,000 * 0.02). Consider a roofing company that agrees to replace a customer's roof on credit for $10,000.

Are bad debts a cost or a liability? Bad debts are an expense to the business rather than a liability because the amount expected to be received from the debtor is irrecoverable and has a negative impact on the books of accounts by reducing accounts receivable.

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