Answer:
Profit and Loss - Increase in Provision for Doubtful debts $ 9,655 (debit)
Provision for Doubtful debts $ 9,655 (credit)
Explanation:
Note that the Provision for Doubtful debts is estimated at 2.5% of ending account receivable.
Thus the amount of the Provision is $ 437,000 × 2.5% = $ 10,925
The Amount of Estimated Doubtful debts<em> before</em> adjustments was estimated at $ 1,270
Comparison with the amount we calculated of the Provision, we have an increase of $ 9,655 ( $ 10,925 - $ 1,270 )
Increase or Decrease in the Provision for doubtful debts should be adjusted in the Profit and Loss account as follows :
Profit and Loss - Increase in Provision for Doubtful debts $ 9,655 (debit)
Provision for Doubtful debts $ (credit)
