Upon completing an aging analysis of accounts receivable, the accountant for Rosco Works prepared and aging of accounts receivable and estimated that $5,000 of the $98,000 accounts receivable balance would be uncollectible. The allowance for doubtful accounts had a $400 debit balance at year-end prior to adjustment. What is the amount of bad debt expense?
A)$5,000.
B)$5,400.
C)$4,600.
D)$400.

Question

Quizplus · Accepted Answer

The estimated uncollectible amount of $5,000 needs to be added to the allowance for doubtful accounts balance of $400 in order to bring the balance to the estimated amount of uncollectible accounts receivable. Therefore, the required adjustment to the allowance for doubtful accounts is $5,000 - $400 = $4,600. This adjustment represents the bad debt expense for the year. Adding the adjustment to the debit balance of $400 in the allowance for doubtful accounts yields a new credit balance of $4,200 ($400 - $4,600).

Upon Completing an Aging Analysis of Accounts Receivable, the Accountant