Question

Skysong, inc. uses the percentage of receivables method for recording bad debts expense. the accounts receivable balance is $140000 and credit sales are $1410000. management estimates that 3% of accounts receivable will be uncollectible. what adjusting entry will skysong, inc. make if the allowance for doubtful accounts has a credit balance of $1400 before adjustment?

Answer 1

Bad debt expense would be $140,000 multiplied by 3% minus the credit balance of allowance for doubtful accounts of $1,400 that is $2,800. The journal entry will be a debit to bad debt expense worth $2800 and a credit to allowance for doubtful accounts worth $2800