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 $15,750 of the accounts receivable balance would be uncollectible. prior to any year-end adjustments, the allowance for doubtful accounts had a credit balance of $375. what adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

Answer 1

Debit Bad Debt expense $ 15,375

Credit Allowance fro doubtful accounts $ 15,375

Step-by-step explanation:

For the purpose of recording of bad debts expense on objective basis (i.e. using receivables aging), the closing balance amount of uncollectible allowance is to be maintained at certain amounts and the entry in the books of accounts is passed with the differential of the amounts.

In the given question, the company needs to have a closing balance of allowance for doubtful accounts against the receivables amounting to $ 15,750. However, the same account already shows a balance of $ 375. Therefore, an entry shall be passed with the difference of the above amounts i.e. $ 15,750 - $ 375 = $ 15,375

Answer 2

Bad Debt Expense: Debit; $16,125.00
Allowance for Doubtful Accounts: Credit; $16,125.00

$15,750.00 + $375.00 = $ 16,125.00