Question

An aging of a company's accounts receivable indicates that $4,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $900 debit balance, the adjustment to record bad debts for the period will require aa. debit to Bad Debit Expense for $5,200 b. debit to Bad Debits Expense for $4,000 c. debit to Bad Debits Expense for $2,800 d. credit to Allowance for Doubtful Accounts for $5,000

Answer 1

The correct answer is Debit to Bad debt expense for $4,900, unfortunately none of the options provided in the question is correct.

Step-by-step explanation:

Bad debt expense is an estimated amount of accounts receivable that is deemed to be uncollectible. There are different methods used in determining the bad debt expense - aging method, percentage-of-credit-sales method.

In the question, an amount of $4,000 was already estimated as uncollectible meanwhile the Allowance for Doubtful Accounts has a $900 debit balance. This means the bad debt expense that would be recorded would be $4,000 + $900 = $4,900. The addition is necessary in order to reinstate the Allowance for Doubtful Accounts to $4,000 and since the opening balance of the allowance account is in debit. Required journal entries are as follows:

Debit Bad debt expense $4,900

Credit Allowance for Doubtful Accounts $4,900

(To record bad debt expense)