Question

Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment), and uncollectible accounts expense is estimated at 3% of net sales. If net sales are $600,000, the amount of the adjusting entry to record the provision for doubtful accounts is

Question options:

$18,500

$17,500

$18,000

none of the above

Answer 1

The correct answer is C

Step-by-step explanation:

Computing the amount of the adjusting entry which is to be recorded for the provision of doubtful accounts using the percentage of sales method:

Provision for doubtful accounts = Net Sales × Estimated uncollectible accounts expense

where

Net Sales is $600,000

Estimated uncollectible accounts expense is 3%

So, putting the values above:

Provision for doubtful accounts = $600,000 × 3%

Provision for doubtful accounts = $18,000

And the entry to be posted is as:

Bad debts expense A/c...................................Dr $18,000

Allowance for doubtful accounts A/c..........Cr $18,000

Note: The credit balance of Allowance for Doubtful Accounts will not considered in this method while computing the provision for doubtful accounts.