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 $ 452,000 Debit Allowance for Doubtful Accounts 1,420 Credit Net Sales 2,270,000 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

Debit Bad debit expense $7,620

Credit allowance for doubtful debt $7,620

Being entries to adjusted for estimated bad debts

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.

Amount of allowance on receivables required

= 2% * $ 452,000

= $9,040

Since the Allowance for Doubtful Accounts has a credit balance of $1,420, the amount to be adjusted for

= $9,040 - $1,420

= $7620