Question

Journalize the adjusting entry for bad debts at December 31, 2017, assuming that the unadjusted balance in Allowance for Doubtful Accounts is a debit of $ 1,300 and the aging schedule indicates that total estimated bad debts will be $ 38,000. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Answer 1

• When aging method is used with Allowance method, the Adjusted balance in Allowance for Doubtful Accounts MUST BE EQUAL to the amount of uncollectible amount as calculated by Aging Method.
• Here, Uncollectible estimated amount = $ 38,000
• Unadjusted balance of Allowance account given = $ 1,300 DEBIT, which has to be increased to $ 38,000 CREDIT.
• Hence, amount by which the Allowance account needs to be credited with = $ 39,300 [$1300 for clearing out the debit balance, and additional $ 38000 for making Credit balance equal to estimated bad debt]
• Adjustment journal entry:

Date	Accounts title	Debit	Credit
31-Dec-17	Bad Debt Expenses	$            39,300.00
	Allowance for Doubtful Accounts		$           39,300.00
	(Bad Debt expenses recorded)