Question

At the end of the year, Brinkley Incorporated’s balance of Allowance for Uncollectible Accounts is $3,500 (credit) before adjustment. The company estimates future uncollectible accounts to be 5% of credit sales for the year. Credit sales for the year total $130,000.What is the adjustment Brinkley would record for Allowance for Uncollectible Accounts using the percentage-of-credit-sales method?

Answer 1

Answer:

The adjustment Brinkley records for Allowance for Uncollectible Accounts using the percentage-of-credit-sales method:

Debit Bad debts expense $6,500

Credit Allowance for Uncollectible Accounts $6,500

Explanation:

Brinkley Incorporated’ uses the percentage-of-credit-sales method - application a flat percentage to the total amount of net credit sales for the period to  estimate uncollectible.

Estimated uncollectible = 5% x $130,000 = $6,500

The company records an Allowance for Uncollectible Accounts for $6,500 while simultaneously reporting $6,500 in bad debts expense. The  adjustment entry:

Debit Bad debts expense $6,500

Credit Allowance for Uncollectible Accounts $6,500

The balance in the  Allowance for Uncollectible Accounts after adjustment is $6,500 + $3,500 = $10,000