Question

The following selected amounts are reported on the year-end unadjusted trial balance report for a company that uses the percent of sales method to determine its bad debts expense. Accounts receivable$441,000Debit Allowance for Doubtful Accounts 1,310Debit Net Sales 2,160,000Credit All sales are made on credit. Based on past experience, the company estimates 1.0% of credit sales 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

The Adjusting entry at the end of the current year to record its estimated bad debts expense is:

Journal Entry:

Debit Bad Debts Expense $22,910

Credit Allowance for Doubtful Accounts $22,910

To record the bad debts expense and bring the Allowance for Doubtful Accounts to a credit balance of $21,600.

Step-by-step explanation:

a) Allowance for Doubtful Accounts

Beginning balance $1,310 Dr.

Ending balance 21,600

Uncollectible Expense = $22,900

b) Uncollectible for the period = 1% of $2,160,000 = $21,600

This should be the ending balance of the Allowance for Doubtful Accounts.

c) The above journal entry will ensure that the balance in the Allowance for Doubtful Accounts is now $21,600 credit.