Question

A company ages its accounts receivables to determine its end of period adjustment for bad debts. At the end of the current year, management estimated that $21,000 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a debit balance of $550. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

Bad Debts Expense 21,000
Allowance for Doubtful Accounts 21,000
Bad Debts Expense 20,450
Allowance for Doubtful Accounts 20,450
Bad Debts Expense 21,550
Allowance for Doubtful Accounts 21,550
Accounts Receivable 21,000
Bad Debts Expense 550
Sales 21,550
Accounts Receivable 21,550
Allowance for Doubtful Accounts 21,550

Answer 1

Bad Debts Expense 21,550

To Allowance for Doubtful Accounts 21,550

Step-by-step explanation:

Before passing the adjusting entry, first we have to determine the adjusted amount which is shown below:

= Ending balance of accounts receivable + debit balance of Allowance for Doubtful Accounts

= $21,000 + $550

= $21,550

Now the adjusting entry would be

Bad debt expense A/c Dr $21,550

To Allowance for doubtful debts $21,550

(Being estimated bad debts is recorded)