Question

The unadjusted trial balance at year-end for a company that uses the percent of receivables method to determine its bad debts expense reports the following selected amounts: Accounts receivable $ 438,000 Debit Allowance for Doubtful Accounts 1,280 Credit Net Sales 2,130,000 Credit All sales are made on credit. Based on past experience, the company estimates 2.0% of ending account receivable to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

Answer 1

Bad debt expense A/c Dr $7,480

To Allowance for doubtful A/c $7,480

Step-by-step explanation:

According to the scenario, the given data are as follows:

Accounts receivable = $438,000 debit

Allowance for doubtful Accounts = $1,280 credit

Net sales = $2,130,000 credit

Uncollectible percentage = 2%

So, Uncollectible amount = $438,000 × 2% = $8,760

As Allowance for doubtful accounts is in credit, so, it get subtracted.

So, Bad debt expense = $8,760 - $1,280 = $7,480

So, The adjusting entry are as follows:

Bad debt expense A/c Dr $7,480

To Allowance for doubtful A/c $7,480

(Being the bad debt expense is recorded)