Allowance for Doubtful Accounts has a credit balance of $1,300 at the end of the year (before adjustment). The company prepares an analysis of customers' accounts to estimate the amount of uncollectible accounts of $41,900. Which of the following adjusting entries would be made to record the bad debt expense for the year?
A) debit Allowance for Doubtful Accounts, $40,600; credit Bad Debt Expense, $40,600
B) debit Allowance for Doubtful Accounts, $43,200; credit Bad Debt Expense, $43,200
C) debit Bad Debt Expense, $43,200; credit Allowance for Doubtful Accounts, $43,200
D) debit Bad Debt Expense, $40,600; credit Allowance for Doubtful Accounts, $40,600

Question

Quizplus · Accepted Answer

The adjusting entry should increase the Bad Debt Expense account and decrease the Allowance for Doubtful Accounts account by the estimated amount of uncollectible accounts. Therefore, the correct entry would be to debit Bad Debt Expense, $40,600; credit Allowance for Doubtful Accounts, $40,600. Option A is incorrect because it debits Allowance for Doubtful Accounts instead of crediting it. Option B overstates the bad debt expense by including the existing credit balance in Allowance for Doubtful Accounts. Option C also overstates the bad debt expense and reverses the normal debit and credit balances of the accounts.

Allowance for Doubtful Accounts Has a Credit Balance of $1,300