Question

Allowance for Doubtful Accounts has an unadjusted balance of $400 at the end of the year, and uncollectible accounts expense is estimated at 1% of net sales. If net sales are $300,000, the amount of the adjustment to record the provision for doubtful accounts is:A. $3,000B. $3,400C. $400D. $2,600

Answer 1

The amount of the adjustment to record the provision for doubtful accounts is: A. $3,000

Step-by-step explanation:

The allowance for doubtful accounts is a contra-asset account that records the amount of receivables expected to be uncollectible, makes a reduction of the total amount of accounts receivable appearing on a company’s balance sheet. There are two way to estimate uncollectible accounts: the percentage of sales method and the accounts receivable aging method.

The company uses the percentage of sales method - application a flat percentage to the total amount of net credit sales for the period.

Estimated uncollectible = 1% x $300,000 = $3,00 0

The company establishes an allowance for doubtful accounts for $3,00 0 while simultaneously reporting $3,00 0 in bad debt expense