Question

Bramble Company uses the percentage of receivables method for recording bad debt expense. The accounts receivable balance is $598000 and credit sales are $2620000. Management estimates that 5% of accounts receivable will be uncollectible. What adjusting entry will Bramble Company make to record bad debt expense if the Allowance for Doubtful Accounts has a $4800 credit balance before adjustment?

Answer 1

Answer and Explanation

Given:

Accounts receivable balance = $598,000

Percentage of receivables that are uncollectible = 5% or 0.05

Uncollectible receivables = 0.05 × 598,000 = $29,900

Adjusting journal entry to record bad debt expense is:

Particulars Debit Credit

Bad debts expense XXXXX

Allowance for doubtful debts XXXXX

(Being bad debts incurred)

Noe, Allowance for doubtful debts has a credit balance of $4,800.

Bad debt incurred = 29,900 - 4,800 = $25,100

So adjusting entry :

Particulars Debit Credit

Bad debts expense $25,100

Allowance for doubtful debts $25,100

(Being bad debts incurred)