A company ages its accounts receivables to determine its end of period adjustment for bad debts. At the end of the current year, management estimated that $15,750 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a debit balance of $375. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

Question

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The adjusting entry for estimated bad debts expense is to debit Bad Debts Expense for the estimated uncollectible amount and credit Allowance for Doubtful Accounts for the same amount. The Allowance for Doubtful Accounts has a debit balance of $375, so it needs to be credited in order to increase the balance to account for the estimated bad debts of $15,750. Therefore, the adjusting entry should be:

Bad Debts Expense           15,750
Allowance for Doubtful Accounts 15,375
    (To record estimated bad debts expense)

A Company Ages Its Accounts Receivables to Determine Its End