Question

# Allowance for Doubtful Accounts has a credit balance of \$500 at the end of the year...

Allowance for Doubtful Accounts has a credit balance of \$500 at the end of the year (before adjustment), and an analysis of accounts receivable in the customer ledger indicates doubtful accounts of \$15,000. Which of the following entries records the proper provision for doubtful accounts?

a.Debit Bad Debt Expense, \$500; credit Allowance for Doubtful Accounts, \$500

b.Debit Allowance for Doubtful Accounts, \$500; credit Bad Debt Expense, \$500

c.Debit Allowance for Doubtful Accounts, \$15,500; credit Bad Debt Expense, \$15,500

d.Debit Bad Debt Expense, \$14,500; credit Allowance for Doubtful Accounts, \$14,500

• The ADJUATED balance of Allowance must be equal to the estimated uncollectible amount.

Hence, adjusted balance should be \$ 15,000 Credit

• The unadjusted balance existing in Allowance account is \$ 500 Credit
• Hence, it needs to be credited by \$ 14,500 MORE (15000 – 500)
• So, Bad Debt Expense will be debited by \$ 14,500, and
Allowance account will be credited by \$ 14,500
• Correct Answer = Option ‘D’
Debit Bad Debt Expense, \$14,500; credit Allowance for Doubtful Accounts, \$14,500

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