Question

At the end of the year, Dahir Incorporated's balance of allowance for uncollectible accounts is 3,000 (debit) before adjustment. The company estimates future uncollectible accounts to be15,000. What is the net adjustment to the allowance for uncollectible accounts?

1) $12,000 (debit)
2) $12,000 (credit)
3) $18,000 (debit)
4) $18,000 (credit)

Answer 1

The net adjustment to the allowance for uncollectible accounts for Dahir Incorporated is $12,000 (credit). This figure corrects the current debit balance and aligns the allowance with the estimated future uncollectibles.

Step-by-step explanation:

To Dahir Incorporated's question about the net adjustment to the allowance for uncollectible accounts is 2) $12,000 (credit). When adjusting the allowance account, the company must ensure that the ending balance of the allowance for uncollectible accounts matches the estimated future uncollectible accounts of $15,000.

Currently, the allowance account has a debit balance of $3,000, which is the opposite of the usual credit balance expected for this type of account. To adjust the account to the estimated balance, a credit of $18,000 is needed. Here's why: the $3,000 debit balance must first be eliminated with a $3,000 credit. Then, an additional $15,000 credit is needed to reach the estimated future uncollectible accounts, resulting in a total credit of $18,000. However, since the question asks for the net adjustment, we subtract the $3,000 debit from the $18,000 credit, arriving at a net adjustment of $12,000 (credit).