In: Accounting
Total doubtful accounts at the end of the year are estimated to be $12,500 based on an aging of accounts receivable. If the balance in the Allowance for Doubtful Accounts is a $3,500 debit before adjustment, what is current year's Bad Debt Expense?
Notes: 1 | |||
Allowance Method: In this method we can debit the all expected to be uncollected in bad debt expenses | |||
and credited to allowance for doubtful account. Once uncollectable amount confirmed from customer than we can | |||
debited to allowance account and credit to account receivable account | |||
Balance in Allowance for Doubtful Accounts: Normal balance of this account is credit balance but due to more write off uncollectable | |||
amount during last period balance in this account become the debit balance. | |||
At the time of calculation of bad debt for current year if balance in allowance for doubtful account have the credit | |||
balance than this credit amount is reduces from the current year estimated to be uncollectable amount. | |||
If balance in doubtful account is debit than this amount is added in current year estimated amount | |||
Solution: | |||
Amount estimated on the basis of aging of account receivable | $12,500 | ||
Add: Debit balance of allowance for doubtful accounts | $3,500 | ||
Total = Bad Debt Expenses | $16,000 | ||
Answer = Current year bad debt expenses = $ 16,000 | |||