Answer:
- What would be the amount of the adjustment for bad debts?
Dr Bad Debt Expense $ 128,000
Cr Allowance for Uncollectible Accounts $ 128,000
Explanation:
- If the unadjusted credit balance in the Allowance for Doubtful Accounts account before is $30,000
Cr Allowance for Uncollectible Accounts $ 30,000
- What would be the amount of the adjustment for bad debts?
Dr Bad Debt Expense $ 128,000
Cr Allowance for Uncollectible Accounts $ 128,000
$740,000 5% $37,000 Past Due 0-30 days
$480,000 10% $48,000 Past Due 31-60 days
$220,000 15% $33,000 Past due 61-90 days
$160,000 25% $40,000 Over 90 days
$158,000
If the company applies the allowance method, it means that the account Allowance for Uncollectible Accounts must show as balance the % of estimated value.
Because the company already has a CREDIT balance in the Allowance for Doubtful Accounts it's necessary to register an entry that complement the existing value and reflect the value as % of account receivable.
Bad accounts are those credits granted by the company and there is no possibility of being charged.
"When customers buy products on credits but the company cannot collect the debt, then it's necessary to cancel the unpaid invoice as uncollectible."
One way is to directly cancel bad debts at the time it was decided that the credit is bad, the total amount reported as bad debt expenses negatively affect the income statement and the accounts receivable are reduced by the same amount, less assets
