Question

An analysis of a company's past credit sales history of bad debts indicates that $5,000 are estimated to be uncollectible. if allowance for doubtful accounts has a $900 credit balance, the adjustment to record bad debts for the period will require a _____

group of answer choices
A. debit to allowance for doubtful accounts for $4,100.
B. credit to bad debt expense for $5,000.
C. credit to allowance for doubtful accounts for $5,000.
D. debit to bad debt expense for $4,100.

Answer 1

The adjustment to record bad debts for the period will require a credit to allowance for doubtful accounts for $5,000.

Therefore, the correct answer is: option C). credit to allowance for doubtful accounts for $5,000.

Step-by-step explanation:

The correct adjustment to record bad debts when $5,000 are estimated to be uncollectible and there is already a $900 credit balance in the Allowance for Doubtful Accounts is a debit of $4,100 to Bad Debt Expense.

The allowance for doubtful accounts is a contra-asset account that represents the estimated amount of accounts receivable that may not be collected.

When bad debts are identified, they are recorded as an expense called bad debt expense, and the allowance for doubtful accounts is reduced by the same amount, resulting in a credit to the account.

In this case, the company's analysis of its past credit sales history indicates that $5,000 is estimated to be uncollectible.

Since the allowance for doubtful accounts already has a $900 credit balance, the adjustment will require a credit of $5,000 to increase the allowance and reflect the estimated uncollectible amount.