The unadjusted trial balance at year-end for a company that uses the percent of receivables method to determine its bad debts expense reports the following selected amounts: Accounts receivable $ 435,000 Debit Allowance for Doubtful Accounts 1,250 Credit Net Sales 2,100,000 Credit All sales are made on credit. Based on past experience, the company estimates 3.5% of ending account receivable to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

Question

Brodie Hayden

Business

1 August, 16:06

The unadjusted trial balance at year-end for a company that uses the percent of receivables method to determine its bad debts expense reports the following selected amounts: Accounts receivable $ 435,000 Debit Allowance for Doubtful Accounts 1,250 Credit Net Sales 2,100,000 Credit All sales are made on credit. Based on past experience, the company estimates 3.5% of ending account receivable to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

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Aaron · Answer 1

Given that,

Accounts receivable = $435,000

Debit Allowance for Doubtful Accounts = 1,250

Credit Net Sales = 2,100,000

Ending account receivable to be uncollectible = 3.5%

Estimated bad debts:

= Accounts Receivable * 3.5% + Debit balance in Allowance for Doubtful Accounts

= (435,000 * 3.5%) + 1,250

= $16,475

Therefore, the journal entry is as follows:

Bad debts expense A/c Dr. $16,475

To Allowance for Doubtful Accounts $16,475