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13 August, 14:09

At the end of 2021, Murray State Lenders had a balance in its Allowance for Uncollectible Accounts of $4,500 (debit) before any adjustment. The company estimated its future uncollectible accounts to be $12,000 using the percentage-of-receivables method. Murray State's adjustment on December 31, 2021, to record its estimated uncollectible accounts included a:

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  1. 13 August, 14:26
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    Murray State's adjustment is as follows:

    Dr Bad debts expense $16500

    Cr Allowance for uncollectible accounts $16500

    Explanation:

    The estimate of $12000 as allowance for uncollectible accounts implies that the balance in the account at the end of the year should be $12000, hence there has to be a credit entry of $16500 ($4500+$12000) in allowance for uncollectible accounts so as to have a balance of $12000.

    The double entries would look like the below:

    Dr Bad debts expense $16500

    Cr Allowance for uncollectible accounts $16500

    The debit entry in the bad debts expense account is on the premise that expense increased while the posting in allowance for uncollectible accounts show a reduction in asset, hence it is credited
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