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The Allowance for Doubtful Accounts has a typical unadjusted balance of $1,800 at the end of...

The Allowance for Doubtful Accounts has a typical unadjusted balance of $1,800 at the end of the year, but an analysis of accounts in the customers’ ledger indicates doubtful accounts should be $15,000 (according to managements estimates.) Which of the following records the proper adjustment for to the Allowance for Doubtful Accounts? Increase Bad Debts Expense $1,800; increase the Allowance account by $1,800. Increase Bad Debts Expense $15,000; increase the Allowance account $15,000. Increase Bad Debts Expense $13,200; increase the Allowance account $13,200. Increase Bad Debts Expense $16,800; increase the Allowance account $16,800

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Answer #1

Correct Option : Increase Bad Debts Expense $13,200; increase the Allowance account $13,200

Reason:

Caluclation of bad debt expense
Step: 1 calculate closing amount of allowance for uncollectible account
Proposed year end "allowance for uncollectibe accounts" 1800
Step 2: Amount already exists in ledger" allowance for uncollectible accounts"
Opening balance 15000
Amount already exist 15000
Final Step : Bad debt expense (Difference of step 1 and 2) 13200
Journal entry
Account Name Debit Credit
BAD DEBT EXPENSE 13200
     Allowance for uncollectibe accounts 13200
( To record bad debt expense)
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