Question

At the end of the year, Mercy Cosmetics’ balance of Allowance for Uncollectible Accounts is $830 (debit) before adjustment. The balance of Accounts Receivable is $27,300. The company estimates that 9% of accounts will not be collected over the next year. What is the adjustment Mercy Cosmetics would record for Allowance for Uncollectible Accounts?

Answer 1

Answer:

The journal entry showing the adjustment is shown as:

Dr bad debt expense  $3287

Cr Allowance for uncollectible accounts   $3287

Explanation:

The company estimate of uncollectible account this year is calculated by multiplying the percentage of uncollectible accounts by the balance in the accounts receivable.

Hence,estimate of uncollectible account is 9%*$27,300=$2457

The estimate of $2457 implies that the balance in the allowance for uncollectible accounts should be $2457 credit  balance as at the end of the year.

In order to achieve that ,reverse the debit balance of $830 in the account by posting a credit of $830,that takes the account to nil,then post a new allowance for uncollectible accounts($2457 credit entry)

Without mincing words, the adjusting entries passed is the sum of the two credit entries of $3287