Question

Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment), and bad debt expense is estimated at 3% of credit sales. If credit sales are $300,000, the amount of the adjusting entry to record the estimated uncollectible accounts receivable is

Answer 1

Answer:

Adjusting entry to record the estimated uncollectible accounts receivable is:

Debit Bad debt expense                                  $8,500

Credi Allowance for doubtful accounts          $8,500

(To record bad debt expense for the year)

Explanation:

The company uses percentage of credit sale to arrive at an estimated amount of accounts receivable that is deemed irrecoverable.

3% of credit sales of $300,000 = $9,000

Since there is an existing credit balance of $500 in the allowance for doubtful accounts, in order to reinstate the balance in that account to $9,000, we need to remove the existing balance from the calculated estimate. Therefore, $9,000 - $500 = $8,500 becomes the necessary adjustment to Bad debt expense.