Question

ABC Associates had credit sales of $1,000,000 in the current year, an ending Accounts Receivable balance of $700,000, and a $34,000 preadjustment credit balance in Allowance for Doubtful Accounts. Bad debts are estimated as 10% of outstanding accounts receivable. The adjusting entry to record bad debt expense for the year would include a

a) $70,000 credit to Bad Debt Expense.

b) $34,000 debit to Bad Debt Expense

c) $70,000 credit to Allowance for Doubtful Accounts

d) 36,000 debit to Bad Debt Expense

Answer 1

Answer : D = $ 36,000 debit to Bad expenses.

>> Uncollectable amount = $ 700,000 * 10 % = $ 70,000.

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Journal Entry

Particulars	Debit	Credit
Bad Debts Expenses ( $ 70,000 - $ 34,000 )	$ 36,000
Allowance for Doubtful accounts		$ 36,000.

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>> Credit balance of Allowance for Doubtful account can be adjusted against Bad debts, Allowance for doubtful account as credit balance of $ 34,000.which is adjusted against the bad debts of $ 70,000 and net amount of $ 36,000 bad debts expenses is recorded.

Journal entry for written off

Particulars	Debit	Credit
Allowance for doubtful debts	$ 70,000
Accounts Receivable account		$ 70,000