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 $ 455,000 Debit Allowance for Doubtful Accounts 1,450 Credit Net Sales 2,300,000 Credit All sales are made on credit. Based on past experience, the company estimates 2.5% 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

Debit Bad debt expense $9,925

Credit Allowance for doubtful debt $9,925

Step-by-step explanation:

When a company makes sales on account, debit accounts receivable and credit sales. Based on assessment, some or all of the receivables may be uncollectible.

To account for this, debit bad debit expense and credit allowance for doubtful debt. Should the debt become uncollectible (i.e go bad), debit allowance for doubtful debt and credit accounts receivable.

Where a debit that had previously been determined to have gone bad gets settled, debit cash and credit bad debt expense.

Allowance for doubtful debt for the year

= 2.5% * $455,000

= $11,375

Given that the Allowance for Doubtful Accounts 1,450 Credit,

amount to be adjusted

= $11,375 - $1,450

= $9,925