Question

The unadjusted trial balance at year-end for a company that uses the percent of receivables method to determine its bad debts expense reports the following selected amounts: Accounts receivable $ 435,000 Debit Allowance for Doubtful Accounts 1,250 Credit Net Sales 2,100,000 Credit All sales are made on credit. Based on past experience, the company estimates 3.5% of ending account receivable to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

Answer 1

Answer:

Given that,

Accounts receivable = $435,000

Debit Allowance for Doubtful Accounts = 1,250

Credit Net Sales = 2,100,000

Ending account receivable to be uncollectible = 3.5%

Estimated bad debts:

= Accounts Receivable × 3.5% + Debit balance in Allowance for Doubtful Accounts

= (435,000 × 3.5%) + 1,250

= $16,475

Therefore, the journal entry is as follows:

Bad debts expense A/c        Dr.  $16,475

To Allowance for Doubtful Accounts         $16,475