Using the aging method of accounts receivable method, $5,000 of the company's Accounts Receivable are estimated to be uncollectible. At the end of the year, the balance of Accounts Receivable is $100,000 and the unadjusted credit balance of the Allowance for Doubtful Accounts is $500. Credit sales during the year totaled $150,000. What is the current year's Bad Debt Expense?

A. $4,500

B. $5,000

C. $7,500

D. $7,000

A. $4,500

Explanation:

As the Allowance of Doubtful Accounts account already has credit balance of $500, and we need to record $5,000 expense at the end of the year. We know that Allowance of Doubtful Accounts account account has credit nature so it needed $4,500 ($5,000 - $500) to be adjusted at the end of the year to make the adjusted balance equals to $35,000. So, bad debt expense for the year will be $4,500.

The answer is A.

Explanation:

Closing/Ending balance in Allowance for Doubtful Accounts = Unadjusted credit (debit) balance in Allowance for Doubtful Accounts + Bad Debt Expense

To get Bad Debt Expense, we re-write the formula:.

Closing/Ending balance in Allowance for Doubtful Accounts - Unadjusted ending credit (debit) balance in Allowance for Doubtful Accounts

Ending/Closing method balance in allowance for doubtful debt = $5,000

Unadjusted ending credit (debit) balance in Allowance for Doubtful Accounts = $500

So we have:

= $5,000 - $500

= $4,500