Ask Question
23 October, 14:20

A company has $80,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 6% of outstanding receivables are uncollectible. The current credit balance (before adjustments) in the allowance for doubtful accounts is $1,200. The journal entry to record the adjustment would be how much?

+1
Answers (1)
  1. 23 October, 14:32
    0
    Dr Bad Debt expense 6,000 Cr Allowance for Doubtful Accounts account 6,000

    Explanation:

    The total estimated bad debts are $4,800 ( = $80,000 x 6%). So the Allowance for Doubtful Accounts account ending balance should be $4,800. Since this account is a contra asset account, the ending balance should be $4,800 credited.

    But currently the account has a $1,200 debit balance (it's like - $1,200), so the adjustment record must be = $4,800 + $1,200 = $6,000

    That way the ending balance = $6,000 - $1,200 = $4,800

    The journal entries should be:

    Dr Bad Debt expense 6,000 Cr Allowance for Doubtful Accounts account 6,000
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “A company has $80,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers