Question

Adjusting Entry for Allowance for Doubtful Accounts:

Based on an allowance for doubtful accounts with a credit balance of $672 and an estimated uncollectible amount of $15,013, 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 that should be made is option B: Debit bad debt expense, $14,341; credit allowance for doubtful accounts, $14,341.

Step-by-step explanation:

The adjusting entry that should be made is option B: Debit bad debt expense, $14,341; credit allowance for doubtful accounts, $14,341.

When there is an allowance for doubtful accounts with a credit balance, it means that there are more funds set aside for potential bad debts than the estimated uncollectible amount. To adjust the allowance for doubtful accounts to match the estimated uncollectible amount, we need to decrease the allowance for doubtful accounts. This is done by debiting the allowance for doubtful accounts. Then, we credit bad debt expense for the same amount to recognize the expense of potential uncollectible accounts.

Therefore, the correct adjusting entry is to debit bad debt expense, $14,341 and credit allowance for doubtful accounts, $14,341.