Question

Enchill Company accrues bad debt expense during the year at an amount equal to 3% of credit sales. At the end of the year, a journal entry adjusts the allowance for uncollectible accounts to a desired amount based on an aging of accounts receivable. At the beginning of 2018, the allowance account had a credit balance of $18,000. During 2018, credit sales totaled $480,000 and receivables of $14,000 were written off. The year-end aging indicated that a $21,000 allowance for uncollectible accounts was required. Enchill's bad debt expense for 2018 would be:

Answer 1

$17,000

Step-by-step explanation:

To calculate this, the allowance account will be the focus. Therefore, the following simple equation can be used:

Ending allowance account = Beginning allowance account – receivables written of during the year + Bad debt

Making Bad debt the subject of the formula, we have:

Bad debt = Ending allowance account - Beginning allowance account + receivables written of during the year

Substituting the values from the question into the immediate equation above, we have:

Bad debt = $21,000 - $18,000 + 14,000 = $17,000

Therefore, Enchill's bad debt expense for 2018 would be $17,000.

Answer 2

$17,000

Step-by-step explanation:

The amount of credit balance is $18,000 which is then subtracted from the amount of Receivables which are written off which is $14,000. The difference of both the amounts is then subtracted from the allowance for uncollectible accounts which is required, the amount is $21,000.

Credit balance - Written off amount

$18,000 - $14,000 = $4000

Allowance for uncollectible accounts - $4,000

$21,000 - $4,000 = $17,000