Allowance for Doubtful Accounts has a debit balance of $600 at the end of the year (before adjustment), and an analysis of accounts in the customers ledger indicates uncollectible receivables of $13,000. Which of the following entries records the proper adjusting entry for bad debt expense?
A) debit Bad Debt Expense, $600; credit Allowance for Doubtful Accounts, $600
B) debit Bad Debt Expense, $12,400; credit Allowance for Doubtful Accounts, $12,400
C) debit Allowance for Doubtful Accounts, $600; credit Bad Debt Expense, $600
D) debit Bad Debt Expense, $13,600; credit Allowance for Doubtful Accounts, $13,600

Question

Quizplus · Accepted Answer

The correct adjusting entry is to debit Bad Debt Expense for $13,600 and credit Allowance for Doubtful Accounts for $13,600. This is because the Allowance for Doubtful Accounts needs to be adjusted to the desired balance of $13,000, but it already has a debit balance of $600, indicating it is underfunded. Therefore, the adjustment needs to increase the allowance by $13,600 ($13,000 desired balance + $600 existing debit balance) to both eliminate the debit balance and reach the desired allowance level.

Allowance for Doubtful Accounts Has a Debit Balance of $600