The adjustment for noncollectable accounts on December 31, 2018:
Debit Bad Debts Expense $13,800
Credit Allowance for Doubtful Account $13,800
Explanation:
In Pave Construction, 2018 is the first year of operations. The company provides services on account of $152,000.
By the end of 2018, cash collections on these accounts total $106,000.
At the end of 2018, Accounts Receivable (the uncollected accounts) has debit balance of $46,000 ($152,000 - $106,000 = $46,000)
Pave estimates that 30% of the uncollected accounts will be bad debts
Bad Debts Expense = 30% x $46,000 = $13,800
The adjusting entry to record the bad debts expense will be:
Debit Bad Debts Expense $13,800
Credit Allowance for Doubtful Account $13,800
