Question

At the end of the period, the manager of Olive Co. estimated that $80,000 of its accounts receivable were uncollectible. If the Allowance for Doubtful Accounts has a credit balance of $22,400, which of the following is the adjusting entry to record bad debts for the period? Assume the allowance method is used.

Answer 1

Answer:

Debit Bad Debt Expense $57,600 and credit Allowance for Doubtful Accounts for $57,600

Explanation:

When sales are made on credit, the entries required are debit accounts receivables and credit revenue with the amount earned. When the amount earned is paid, credit accounts receivable and debit cash. However, where the company assesses that the receivables may be uncollectible, using the allowance method, the entries required at the point of assessment are debit bad debt expense and credit allowance for doubtful debt.

As such, given that allowance for doubtful debit has a credit balance of $22,400 and the estimate of receivables that may be uncollectible is $80,000,

additional allowance required

= $80,000 - $22,400

= $57,600

Hence adjusting entries required are debit Bad Debt Expense $57,600 and credit Allowance for Doubtful Accounts for $57,600