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3 October, 19:58

During the year, bad debts expense was charged at a rate of 0.5% of credit sales. At year end, an aging analysis of the accounts receivable indicates that the appropriate allowance for doubtful accounts balance is 3% of the outstanding accounts receivable balance. The most appropriate year-end adjustment (in thousands) to the allowance for doubtful accounts is a (n) :

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  1. 3 October, 21:08
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    The answer is given below;

    Explanation:

    The most appropriate adjustment will be to reverse the % of sales charged as bad debt expense like;

    Allowance for Doubtful Accounts (credit sales*.5%) Dr.$

    Bad Debt Expense Cr.$

    after reversal following entry will be made;

    Bad Debt Expense (Receivable*3%) Dr.$

    Allowance for Doubtful Accounts Cr.$

    If we are given opening and closing balance of Accounts receivable then we will taken difference of opening and closing balance of allowance for doubtful accounts.
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