Additional information:
Novak Company reports the following financial information before adjustments. Dr. Cr. Accounts Receivable $155,400 Allowance for Doubtful Accounts $3,890 Sales Revenue (all on credit) 800,700 Sales Returns and Allowances 50,330
Answer:
net credit sales = total sales revenue - sales returns and allowances = $800,700 - $50,330 = $750,370
accounts receivables = $155,400
allowance for doubtful accounts = $3,890 (credit balance)
A) estimated bad debts = 4% of accounts receivables = 4% x $155,400 = $6,216
since the current balance of allowance for doubtful accounts is $3,890, then the adjusting entry should be = $6,216 - $3,890 = $2,326:
Dr Bad debt expense 2,326
Cr Allowance for doubtful accounts 2,326
B) estimated bad debts = 4% of accounts receivables = 4% x $155,400 = $6,216
since the current debit balance of allowance for doubtful accounts is $1,470, then the adjusting entry should be = $6,216 + $1,470 = $7,686:
Dr Bad debt expense 7,686
Cr Allowance for doubtful accounts 7,686
