Question

1. The amount of uncollectible accounts at the end of the year is estimated to be $25,000 using the aging of accounts receivable method. The balance in the Allowance of Doubtful Accounts account is an $8,000 credit before adjustment. Assuming no accounts are written off during the period, what will be the amount of bad debts expense for the period?

2. plasma inc. has net credit sales of $500,000 during the year. Based on historical information, Plasma estimates that 2% of net credit sales result in bad debts. At the beginning of the year, Plasma has a credit balance in its Allowance for Doubtful Accounts of $4,000. What amount of bad debt expense should Plasma recognize for the year, assuming no specific customer accounts were written off?

3. Total doubtful accounts at the end of the year is estimated to be $25,000 using the aging of accounts receivables method. If the balance for the Allowance for Doubtful Accounts is a $7,000 debit before adjustment, what will be the amount of bad debt expense for the period?

Please explain thoroughly - I do not understand the relationship between bad debt expense and allowance for doubtful accounts

Answer 1

1.

The amount of uncollectible accounts at the end of the year is estimated to be $25,000.

The balance in the Allowance of Doubtful Accounts account is an $8,000 credit before adjustment

Bad Debt Expense = uncollectible accounts at the end of the year - Existing credit balance in allowance for doubtful accounts or + existing debit balance in allowance for doubtful accounts

Bad debts expense for the period = 25,000 - 8,000

= $17,000

2.

plasma inc. has net credit sales of $500,000 during the year. Based on historical information, Plasma estimates that 2% of net credit sales result in bad debts.

Bad debt expense to be recognized = Sales x Bad debt percentage

= 500,000 x 2%

= $10,000

Under the percentage-of-sales method, the company ignores any existing balance in the allowance when calculating the amount of the year-end adjustment

3.

Total doubtful accounts at the end of the year is estimated to be $25,000.

Balance for the Allowance for Doubtful Accounts is a $7,000 debit before adjustment,

Bad Debt Expense = uncollectible accounts at the end of the year - Existing credit balance in allowance for doubtful accounts or + existing debit balance in allowance for doubtful accounts

Bad debt expense for the period = 25,000 + 7,000

= $32,000