Question

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

Answer 1

• 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