At the end of a period (before adjustment), Allowance for Doubtful Accounts has a credit balance of $250. The credit sales for the period total $500,000. If the company estimates uncollectible accounts expense at 1% of credit sales, the amount of bad debt expense to be recorded in an adjusting entry is $4,750.

Question

At the end of a period  (before adjustment), Allowance for Doubtful Accounts has a credit balance of $250. The credit sales for the period total $500,000. If the company estimates uncollectible accounts expense at 1% of credit sales, the amount of bad debt expense to be recorded in an adjusting entry is $4,750.

Quizplus · Accepted Answer

The bad debt expense to be recorded would be $5,000 (1% of $500,000 credit sales) minus the existing credit balance of $250 in the Allowance for Doubtful Accounts, resulting in an adjusting entry of $4,750 for bad debt expense. However, the question itself states this as the conclusion, making the statement true as it stands, but the explanation provided here clarifies the calculation process. My initial response was incorrect due to misinterpreting the question's setup as seeking validation for the calculation process rather than the final statement. The correct interpretation should affirm the statement as presented, given it accurately reflects the outcome of the described calculation.

At the End of a Period (Before Adjustment), Allowance