Question

On December 31, Year 1, Kardashian Company recorded an adjusting entry to recognize uncollectible accounts expense. Kardashian had credit sales of $547,000 and estimates uncollectible accounts expense to be one percent of credit sales. Which of the following journal entries shows how this event would be recorded under the allowance method?

a. Uncollectible accounts expense 5470 Accounts receivable 5470
b. Accounts receivable, 5470 Allowance for doubtful accounts 5470
c. Uncollectible Accounts Expense 5470 Allowance for Doubtful Accounts 5470
d. Allowance for Doubtful Accounts, 5470 Uncollectible Accounts Expense 5470

Answer 1

The correct journal entry to record the estimated uncollectible accounts using the allowance method is to debit Uncollectible Accounts Expense and credit Allowance for Doubtful Accounts. This entry estimates potential credit losses, thereby adjusting the contra-asset account offsetting Accounts Receivable.

Step-by-step explanation:

When recording an adjusting entry to recognize uncollectible accounts expense using the allowance method, you adjust the Allowance for Doubtful Accounts and Uncollectible Accounts Expense accounts. The correct journal entry for Kardashian Company, which estimates uncollectible accounts to be one percent of their $547,000 in credit sales, would be:

• Debit Uncollectible Accounts Expense $5,470
• Credit Allowance for Doubtful Accounts $5,470

This entry reflects the estimation of potential credit losses by increasing the expense account and the contra-asset account (Allowance for Doubtful Accounts) that offsets Accounts Receivable. The erroneous options suggest debiting Accounts Receivable or reversing the debit and credit, both of which are incorrect practices for this adjusting entry.