Question

Providing for Doubtful Accounts

At the end of the current year, the accounts receivable account has a debit balance of $1,147,000 and sales for the year total $13,000,000.

The allowance account before adjustment has a credit balance of $15,500. Bad debt expense is estimated at 3/4 of 1% of sales.

The allowance account before adjustment has a credit balance of $15,500. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $49,600.

The allowance account before adjustment has a debit balance of $5,700. Bad debt expense is estimated at 1/4 of 1% of sales.

The allowance account before adjustment has a debit balance of $5,700. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $47,300.

Determine the amount of the adjusting entry to provide for doubtful accounts under each of the assumptions (a through d) listed above.

a.	$
b.	$
c.	$
d.	$

Answer 1

a) To calculate the bad debts expense, we multiply net sales ($13,000,000) by 3/4 of 1%. The bad debts expense is 97500

Bad debt expense $97500

to Allowance for doubtful accounts $97500

b) To calculate the bad debt expense, we subtract the allowance after adjustment ($49600) to the allowance account before adjustment ($15500). Here, the allowance account before adjustment is at its normal balance which is the credit balance. Therefore, we subtract the allowance account before and after adjustment. The bad debt expense is $34100

Bad debt expense dr $34100

to Allowance for doubtful accounts   $34100

c) To calculate the bad debts expense, we multiply net sales ($13,000,000) by 1/4 of 1%. The bad debts expense is 97500

Bad debt expense   dr    $32500

Allowance for doubtful accounts $32500

d)To calculate the bad debt expense, we add the allowance account before adjustment ($5700) to the allowance account after adjustment ($47300), We add the allowance account before adjustment, because the normal balance of allowance account is a credit balance. Since the allowance account before adjustment is a debit, we the allowance account before and after adjustments. The bad debt expense is $53000

Bad debt expense dr   $53000

to Allowance for doubtful accounts $53000