Question

A company had a debit balance of $1,700 in the Allowance for Doubtful Accounts account and a debit balance of $450,000 in the Accounts Receivable account prior to the year-end adjustment. Past experience suggests that 2% of receivables will be uncollectible. What amount should be in the adjusting entry for bad debts?

Answer 1

Answer:

$10,700

Explanation:

Answer 2

Answer:

$10,700 should be in the adjusting entry for bad debts.

Explanation:

Allowance for Doubtful Accounts is an contra asset account which is adjusted against the receivables balance in the balance sheet. It has credit balance. At the end of the period we, estimate the amount of allowance for Allowance for Doubtful Accounts, that is reported and adjusted in the receivable balance.

In the given situation there is a debit balance of $1,700 in Allowance for Doubtful Accounts and At the end of the of the period we required to make it a credit balance of $9,000 ( $450,000 x 2% ). First of all we have to adjust the debit balance of $1,700 with a credit entry and also record the estimated $9,000 balance with a credit entry to Allowance for Doubtful Accounts.

Now the Journal Entry will be as follow

Dr. Bad debt Expense                         $10,700

Cr. Allowance for Doubtful Accounts $10,700