Question

Blc estimates loss on account at 10% of accounts receivable as December 31,2018 its total accounts receivable amounted to 320,000 and the balance of the allowance for doubtful accounts amounted to 25,000 before adjustment. prepare adjusting entries

Answer 1

Before passing the adusting entry, let's focus on this:

The allowance for doubtful debts is $25,000 as on December 31,2018. But the estimated loss is 10% of accounts receivable. Accounts Recievable balance is $320,000. Hence, estimated loss is $32,000 (10% of $320,000).

Allowance is only for $25,000. Hence, we need to provide for another $7,000 ($32,000 - $25,000).

Adustment entries that need to be passed are:

Particulars	Debit	Credit
Bad Debts	$7,000
Allowance for doubtful debts		$7,000
(Being allowance made at 10% of accounts receiveables)
Profit and Loss	$7,000
Bad Debts		$7,000
(Being bad debts charged to Profit and loss)

After the above adjustment entries, the allowance for doubtful debts wil increase to $32,000. It will be subtracted from accounts receivables in the Balance sheet.