Question

A company has $99,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 4% of outstanding receivables are uncollectible. The current balance (before adjustments) in the allowance for doubtful accounts is a(n) $890 credit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for:

Answer 1

Answer:

Dr Bad debt expense 3,070

    Cr Allowance for doubtful accounts 3,070

Explanation:

$99,000 in accounts receivables

4% is considered bad debt

$99,000 x 4% = $3,960

the current balance for allowance for doubtful accounts = $890 (credit)

the adjusting entry for allowance for doubtful accounts = $3,960 - $890 = $3,070

the journal entry should be:

Dr Bad debt expense 3,070

    Cr Allowance for doubtful accounts 3,070

the final balance of the allowance for doubtful accounts = $3,070 + $890 = $3,960