Question

n 2018, Warehouse 13 had net credit sales of $750,000. On January 1, 2018, Allowance for Doubtful Accounts had a credit balance of $16,000. During 2018, $29,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivable basis). If the accounts receivable balance at December 31 was $150,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2018

Answer 1

$28,000

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.

Given that Past experience indicates that the allowance should be 10% of the balance in receivables

Allowance = 10% * $150,000

= $15,000

Since during 2018, $29,000 of uncollectible accounts receivable were written off

Balance in allowance account before adjustment

= $29,000 - $16,000

= $13,000 (Debit)

Required adjustment for Doubtful Accounts at December 31, 2018

= $13,000 + $15,000

= $28,000