Question

Lord of the Fries, Inc., has the following account balances at the end of the year before adjustments:

Accounts Receivable	$70,000
Allowance for Doubtful Accounts	$200 debit balance
Sales	$700,000
Doubtful Accounts Expense	$0

Management estimates that 12% of Accounts Receivable will be uncollectible. After the correct adjusting entry has been made, what is total Doubtful Accounts Expense on the income statement for the year?

Do not include $ or negative signs in your answer.

Answer 1

Generally, Allowance for doubtful account has a credit balance but in the question it has a debit balance maybe because they overclaimed on their bad debts written off.

Please note that  when you write off the bad debts, you DR the allowance and CR accounts receivable. So if you're writing off accounts receivable by more than the balance of the provision for doubtful debts, then that could explain why you ended up with a debit balance.

Management estimation of allowance = 12% of $70,000 = $8,400

Doubtful Account expense (Debit) $8400

Other Comphrehensive losses (Debit) $200

Allowance for doubtful expense (Credit) $8600