Question

Brown Company's account balances at December 31, 2014 for Accounts Receivable and the related Allowance for Doubtful Accounts are $920,000 debit and $1,400 credit, respectively. From an aging of accounts receivable, it is estimated that $23,000 of the December 31 receivables will be uncollectible. The necessary adjusting entry would include a credit to the allowance account for:___

Answer 1

The Brown Company needs to credit their Allowance for Doubtful Accounts by $21,600 to adjust the account to the new estimated uncollectible amount of $23,000.

Step-by-step explanation:

The question relates to accounting adjustments for doubtful accounts in a corporate finance setting. The Brown Company has an existing Allowance for Doubtful Accounts with a credit balance of $1,400. After analyzing their accounts receivable, they estimate that an additional $23,000 will be uncollectible. To record this estimation, the company needs to adjust their allowance account to reflect the expected uncollectible amount.

The adjusting entry would require Brown Company to debit Bad Debt Expense for the additional amount estimated to be uncollectible ($23,000 - $1,400 already accounted for) to bring the total allowance to the estimated $23,000. Therefore, they would credit the Allowance for Doubtful Accounts by $21,600 ($23,000 - $1,400 = $21,600) to increase the allowance to the new estimate.