Question

A company has $104,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 5% of outstanding receivables are uncollectible. The current balance (before adjustments) in the allowance for doubtful accounts is a(n) $940 credit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for:

Answer 1

Answer:

$4,260

Explanation:

The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense is given below:

Estimated Uncollectible Accounts is

= $104,000 × 5%

= $5,200

Now  

Bad debt expense is

= Estimated Uncollectible accounts - credit balance in Allowance account

= $5,200 - $940

= $4,260