Allowance for Doubtful Accounts has a debit balance of $2,500 at the end of the year (before adjustment), and bad debt expense is estimated at 4% of net credit sales. If net credit sales are $800,000, the amount of the adjusting entry to record the estimate of the uncollectible accounts is
A) $29,500
B) $34,500
C) $32,000
D) cannot be determined

Question

Quizplus · Accepted Answer

The estimated bad debt expense is 4% of $800,000, which equals $32,000. Since the Allowance for Doubtful Accounts already has a debit balance of $2,500, the adjusting entry should be for the full estimated amount of $32,000 to bring the allowance to the correct balance.

Allowance for Doubtful Accounts Has a Debit Balance of $2,500