Question

A company has $110,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 4% of outstanding receivables are uncollectible. The current balance (before adjustments) in the allowance for doubtful accounts is a(n) $1,000 credit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for:

Answer 1

Provision on accounts receivable = $110,000 * 4% = $4,400

Total allowance for doubtful accounts = $4,400 - $1,000 = $3,400

Date Account Titles and Explanation Debit Credit

Bad debt expense $3,400

Allowance for doubtful accounts $3,400

(To record the bad debt expense)