Question

Assume ClarkClark had an unadjusted $ 2 comma 500$2,500 credit balance in Allowance for Bad Debts at DecemberDecember ​31, 20182018. Journalize ClarkClark​'s DecemberDecember ​31, 20182018​, adjustment to record bad debts expense using the​ percent-of-receivables method

Answer 1

Under percent of receivables method, an estimated percentage of accounts receivables which is uncollectible is provided as an allowance for doubtful accounts.

An unadjusted (i.e which has not been recorded yet) credit balance in Allowance for Bad Debts would be accounted for as follows:

The Journal entry is:

Allowance for Bad Debts A/c Dr. $2,500

To Accounts Receivables A/C $2500

(Being unadjusted balance in Allowance for Bad Debts Account now adjusted)

Here, the allowance for bad debts which had not been recorded previously is recorded. The entry implies the amount being added to already existing allowance for bad debts account which is a loss meanwhile deducting the same amount from accounts receivables (asset) balance.