Allowance for Doubtful Accounts has a credit balance of $800 at the end of the year (before adjustment), and an analysis of accounts in the customer ledger indicates the estimated amount of uncollectible accounts should be $16,000. Based on the estimate above, which of the following adjusting entries should be made?
A) debit Bad Debt Expense, $800; credit Allowance for Doubtful Accounts, $800
B) debit Bad Debt Expense, $15,200; credit Allowance for Doubtful Accounts, $15,200
C) debit Allowance for Doubtful Accounts, $800; credit Bad Debt Expense, $800
D) debit Bad Debt Expense, $16,800; credit Allowance for Doubtful Accounts, $16,800

Question

Quizplus · Accepted Answer

The adjusting entry should increase the balance of the Allowance for Doubtful Accounts to the estimated amount of uncollectible accounts, which is $16,000. Since the Allowance for Doubtful Accounts already has a credit balance of $800, the necessary adjustment would be to credit it by an additional $15,200 ($16,000 - $800). To offset this credit entry and recognize the expense, Bad Debt Expense should be debited by the same amount, $15,200. Therefore, the adjusting entry should be: 
Debit Bad Debt Expense $15,200
Credit Allowance for Doubtful Accounts $15,200

Allowance for Doubtful Accounts Has a Credit Balance of $800