Question

Triple Tier Bakery is a locally-owned business offering custom cakes, cupcakes, desserts and wedding cakes. At year end, Triple Tier's balance of Allowance for Uncollectible Accounts is $550 (credit) before adjustment. The Accounts Receivable balance is $22,500. During the next year, Triple Tier estimates that 10% of accounts will be uncollectible.

Required:
Record the adjustment required for Allowance for Uncollectible Accounts?

Answer 1

Triple Tier Bakery

Journal Entry

Debit Bad Debts Expense $1,700

Credit Allowance for Uncollectible Accounts $1,700

To record the adjustment to bring the allowance to $2,250.

Step-by-step explanation:

a) Data and Calculations:

Balance of Allowance for Uncollectible Accounts = $550 (Cr)

Current Accounts Receivable balance = $22,500

Estimate of uncollectible accounts = 10%

New balance of Allowance for Uncollectible Accounts should be $2,250

Required adjustment = $1,700 ($2,250 - $550)

b) With the $1,700 adjustment the Allowance for Uncollectible Accounts will have a balance of $2,250, which is equal to the 10% of the Accounts Receivable balance of $22,500.