Question

Bailey Company has $200,000 of accounts receivable on December 31. The unadjusted balance of its Allowance for Doubtful Accounts is a debit of $9,000. An aging of its accounts receivable suggests that $12,000 of its receivables will be uncollectible. The amount that should be debited to Bad Debt Expense and credited to Allowance for Doubtful Accounts in the year-end adjusting entry is
a. $3,000
b. $21,000
c. $9,000
d. $14,000
e. $23,000

Answer 1

Answer:

b. $21,000

Explanation:

When a company makes sales on account, debit accounts receivable and credit sales. Based on assessment, some or all of the receivables may be uncollectible.  

To account for this, debit bad debit expense and credit allowance for doubtful debt. Should the debt become uncollectible (i.e go bad), debit allowance for doubtful debt and credit accounts receivable.

Where a debit that had previously been determined to have gone bad gets settled, debit cash and credit bad debt expense.

The amount that should be debited to Bad Debt Expense and credited to Allowance for Doubtful Accounts in the year-end adjusting entry is the sum of the debit balance in the Allowance for Doubtful Accounts and the amount suggested by the aging of receivables.

= $9,000 + $12,000

= $21,000