Question

Orange Products reports a December 31, 2020 balance in Accounts Receivable of $735,000 and net credit...

Orange Products reports a December 31, 2020 balance in Accounts Receivable of $735,000 and net credit sales of $5,200,000 during 2020. Prepare the adjusting entry needed if an aging analysis of accounts receivable indicated that $29,000 of accounts are expected to be uncollectible. The Allowance for Doubtful Accounts has a credit balance of $1,750 before adjustment.

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Answer #1

Answer:

Debit Credit
Bad Debts Expense $27,250
Allowance for Doubtful Accounts $27,250

Explanation:

Definition of Allowance for Doubtful Accounts:
The Allowance for Doubtful Accounts is a contra asset account that is used with the balance in Accounts Receivable to report the net realizable value of the receivables.

If the Allowance for Doubtful Accounts presently has a credit balance of $1,750 and company believe there is a total of $29,000 in Accounts Receivable that will not be collected, company need to enter an additional credit amount of $27,250 (i.e., $29,000 - $1,750) into the Allowance for Doubtful Accounts. The other part of this adjusting entry will be a debit of $27,250 to Bad Debts Expense.

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