At the end of a period (before adjustment), Allowance for Doubtful Accounts has a debit balance of $500. Credit sales for the period total $800,000. If bad debt expense is estimated at 1% of credit sales, the amount of bad debt expense to be recorded in the adjusting entry is $8,500.

Question

At the end of a period  (before adjustment), Allowance for Doubtful Accounts has a debit balance of $500. Credit sales for the period total $800,000. If bad debt expense is estimated at 1% of credit sales, the amount of bad debt expense to be recorded in the adjusting entry is $8,500.

Quizplus · Accepted Answer

The bad debt expense should be 1% of $800,000, which is $8,000. The debit balance of $500 in the Allowance for Doubtful Accounts is not added to the bad debt expense but rather adjusted to reflect the correct allowance balance.

At the End of a Period (Before Adjustment), Allowance