Question

On January 1, Putnam Wholesale Company's Allowance for Doubtful Accounts had a credit balance of $21,000. During the year, it had net credit sales of $800,000 and it had $25,000 of uncollectible accounts receivable that were written off. Past experience indicates that the allowance should be 8% of the balance in receivables (percentage-of-receivables basis). If the accounts receivable balance at December 31 is $300,000, what is the required credit adjustment to the Allowance for Doubtful Accounts at December 31?

Answer 1

Credit Account for Doubtful Accounts by $24,000 on Dec 31.

Step-by-step explanation:

Opening credit balance as on 1 January = $21,000

Net credit sales for the year = $800,000

Amount of Un-collectible accounts written off = $25,000

Closing balance of accounts receivable = $300,000

Balance of doubtful debts = $300,000
`*` 8% = $24,000

Since amount written off as accounts written of for doubtful debts = $25,000

Thus opening balance is fully used of $21,000 and $4,000 is expenses directly the balance is 0 in allowance for Doubtful Debts account.

Therefore, for current year amount credited to Allowance for Doubtful Debts Account = $24,000.

Which is the balance to be maintained.

Credit Account for Doubtful Accounts by $24,000 on Dec 31