Question

Content area allowance for doubtful accounts has a credit balance of $672 at the end of the year (before adjustment), and an analysis of accounts in the customer ledger indicates the estimated amount of uncollectible accounts should be $15,013. based on this estimate, which of the following adjusting entries should be made?

a. debit allowance for doubtful accounts, $672; credit bad debt expense, $672
b. debit bad debt expense, $14,341; credit allowance for doubtful accounts, $14,341
c. debit bad debt expense, $672; credit allowance for doubtful accounts, $672
d. debit allowance for doubtful accounts, $15,685; credit bad debt expense, $15,685

Answer 1

The adjusting entry should debit Bad Debt Expense and credit Allowance for Doubtful Accounts for $14,341 to adjust the allowance to the estimated uncollectible accounts.

Step-by-step explanation:

The correct adjusting entry for estimating the allowance for doubtful accounts is obtained by bringing the allowance balance to the desired year-end balance as per the new estimate. Since the existing allowance has a credit balance of $672 and the estimated uncollectible accounts are $15,013, the adjusting entry needs to increase the allowance by $14,341 ($15,013 desired balance - $672 existing credit balance) to reach the new estimated balance.

The appropriate adjusting entry is:
Debit Bad Debt Expense for $14,341; Credit Allowance for Doubtful Accounts for $14,341.

This entry correctly reflects the anticipated loss from uncollectible accounts, impacting the income statement through the Bad Debt Expense and establishing the correct Allowance for Doubtful Accounts balance on the balance sheet.

The adjusting entry needed in this situation is option C: debit bad debt expense, $672; credit allowance for doubtful accounts, $672.

This adjusting entry is made to recognize the estimated amount of uncollectible accounts, which is $15,013. The allowance for doubtful accounts has a credit balance of $672. To increase the allowance to the estimated amount, we need to debit the allowance for doubtful accounts for $672 and credit the bad debt expense for the same amount.

In this way, the allowance for doubtful accounts is increased to $15,013 and the expense of $672 is recognized for the uncollectible accounts.