A company has $80,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 6% of outstanding receivables are uncollectible. The current credit balance (before adjustments) in the allowance for doubtful accounts is $1,200. The journal entry to record the adjustment would be how much?

Question

Business

Liana Velazquez

18 May, 16:40

A company has $80,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 6% of outstanding receivables are uncollectible. The current credit balance (before adjustments) in the allowance for doubtful accounts is $1,200. The journal entry to record the adjustment would be how much?

+1

Answers (1)

Know the Answer?

Jovani Neal · Answer 1

Dr Bad Debt expense 6,000 Cr Allowance for Doubtful Accounts account 6,000

Explanation:

The total estimated bad debts are $4,800 ( = $80,000 x 6%). So the Allowance for Doubtful Accounts account ending balance should be $4,800. Since this account is a contra asset account, the ending balance should be $4,800 credited.

But currently the account has a $1,200 debit balance (it's like - $1,200), so the adjustment record must be = $4,800 + $1,200 = $6,000

That way the ending balance = $6,000 - $1,200 = $4,800

The journal entries should be:

Dr Bad Debt expense 6,000 Cr Allowance for Doubtful Accounts account 6,000