The unadjusted trial balance at the end of the year includes the following: Accounts Receivable $ 112,000 Allowance for Doubtful Accounts 2,400 Both accounts have normal balances. The company uses the aging of accounts receivable method. Its estimate of uncollectible receivables resulting from the aging analysis equals $7,900. What is the amount of Bad Debt Expense to be recorded for the year?

The amount mount of Bad Debt Expense to be recorded for the year is $5,500

Explanation:

Solution

Given that:

The Estimated uncollectible account = $7,900

What this means is that, the allowance account should have a adjusted balance of $ 7,900 Credit at year end.

Now,

The Current un-adjusted balance in allowance account = $ 2,400 Credit

So,

The allowance for doubtful account need to be credited by an amount IS = [$7,900 - $ 2400] = $5,500

The bad debt expense = $5,500

Note: but the based on the data provided in the question, the correct answer should be $5,500

Bad debt expense $5,500

Explanation:

Accounts Receivable $112,000 (debit)

Allowance for Doubtful Accounts $2,400 (credit)

estimated uncollectible accounts = $7,900

bad debt expense = estimated uncollectible accounts - balance for allowance for doubtful accounts = $7,900 - $2,400 = $5,500

the adjusting journal entry should be:

Dr Bad debt expense 5,500

Cr Allowance for doubtful accounts 5,500

Since the allowance for doubtful accounts is a contra asset account, it has a normal credit balance which reduces the value of accounts receivable.