Question

Accounts receivable $ 443,000 Debit Allowance for Doubtful Accounts 1,330 Debit Net Sales 2,180,000 Credit All sales are made on credit. Based on past experience, the company estimates 3.5% of ending account receivable to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

Answer 1

Answer:

Journal Entry

Dr. Bad Debt Expense                         $16,835

Cr. Allowance for Doubtful Accounts $16,835

Explanation:

Allowance for Doubtful Accounts is normally has credit balance because it is a contra asset account which is adjusted against the Account Receivable. As per given data the Allowance for Doubtful Accounts has debit balance. At the end of the year this account should show the credit balance by 3.5% of Closing receivables. So, we need to adjust this debit balance and the 3.5% Allowance for the year as well.

Allowance for the year = Accounts receivable balance x 3.5% = $ 443,000 x 3.5% = $15,505

Expense for the year  = $15,505 + 1,330 = $16,835