Answer:
The adjusting journal entry would be:
Debit: Bad debts expense $5,317
Credit: Allowance for Doubtful Accounts $5,317
Explanation:
Debit: Bad debts expense $5,317
Credit: Allowance for Doubtful Accounts $5,317
Explanation of the entry:
Allowance for doubtful debts at the end of the year = $402,000 × 2% = $8,040
Credit balance at the start = $2,723
Allowance for doubtful accounts = $8,040 - $2,723 = $5,317
The Allowance for Doubtful Accounts presently has a credit balance of $2,723 and allowance for doubtful debt at the end of year is $8,040, you need to enter an additional credit amount of $5,317 into the Allowance for Doubtful Accounts. The other part of this adjusting entry will be a debit of $5,317 to Bad Debts Expense.
