Answer: The journal entry to record the addition of $500 to the Allowance for Doubtful Accounts account would be:
Debit Allowance for Doubtful Accounts account: $500
Credit Bad Debt Expense account: $500
The resulting balance in the Allowance for Doubtful Accounts account would be $2,500.
Explanation:
Yes, the previous balance in the Allowance for Doubtful Accounts account does come into play when you add $500 to the account. The Allowance for Doubtful Accounts account is a contra asset account that is used to offset the Accounts Receivable account. It represents an estimate of the amount of accounts receivable that are expected to be uncollectible.
The balance in the Allowance for Doubtful Accounts account is based on the estimated amount of uncollectible accounts, which is typically a percentage of the total accounts receivable balance. When you add $500 to the account, you are increasing the estimated amount of uncollectible accounts.
To record this journal entry, you would debit the Allowance for Doubtful Accounts account for $500 and credit an expense account (such as Bad Debt Expense) for the same amount. The previous balance of $2,000 would also be included in the account balance and would be reflected in the new balance of $2,500.
The journal entry to record the addition of $500 to the Allowance for Doubtful Accounts account would be:
Debit Allowance for Doubtful Accounts account: $500
Credit Bad Debt Expense account: $500
The resulting balance in the Allowance for Doubtful Accounts account would be $2,500.