Carla Company reports the following financial information before adjustments.

Accounts Receivable $150,000

Allowance for Doubtful Accounts $2,650

Sales Revenue (all on credit) 821,100

Sales Returns and Allowances 50,660

Prepare the journal entry to record bad debt expense assuming Carla Company estimates bad debts at (a) 4% of accounts receivable and (b) 4% of accounts receivable but Allowance for Doubtful Accounts had a $1,350 debit balance.

A) total estimated bad debts = $150,000 x 4% = $6,000

total bad debts - allowance for uncollectible accounts = $6,000 - $2,650 = $3,350

so the journal entry should be:

Dr Bad debts expense 3,350

Cr Allowance for uncollectible accounts 3,350

B) if allowance for uncollectible accounts had a debit balance of $1,350, you would need to add that debit balance to the estimated bad debts:

total bad debts + debit balance allowance for uncollectible accounts = $6,000 + $1,350 = $7,350

the journal entry should be:

Dr Bad debts expense 7,350

Cr Allowance for uncollectible accounts 7,350