Question

Craigmont uses the allowance method to account for uncollectible accounts. Its year-end unadjusted trial balance shows Accounts Receivable of $138,500, allowance for doubtful accounts of $1,005 (credit) and sales of $1,095,000. If uncollectible accounts are estimated to be 6% of accounts receivable, what is the amount of the bad debts expense adjusting entry

Answer 1

The amount of uncollectible accounts is calculated as follows:

Amount of uncollectible accounts to be adjusted = 6% * Account receivables

= 6% * $138,500

=$8,310

Therefore, amount of uncollectible accounts is $8,310.

Bad debt Expenses = Opening balance of allowance for doubtful account (Credit balance) - Uncollectible account

Bad debt Expenses = $8,310 - $1,005

Bad debt Expenses = $7,305

The journal entry to record allowance for bad debts is as follows:

Account Titles and Explanation Debit Credit

Bad debt Expenses $7,305

Allowance for doubtful account $7,305

(To record adjusting entry for bad debt)