Abbott Company uses the allowance method of accounting for uncollectible accounts. Abbott estimates that 3% of credit sales will be uncollectible. On January 1, Allowance for Doubtful Accounts had a credit balance of $2,400. During the year, Abbott wrote off accounts receivable totaling $1,800 and made credit sales of $100,000. There were no sales returns during the year. After the adjusting entry, the December 31 balance in Bad Debt Expense will be
A) $1,200
B) $3,000
C) $3,600
D) $7,200

Question

Quizplus · Accepted Answer

Abbott estimates 3% of credit sales ($100,000) will be uncollectible, totaling $3,000 (0.03 * $100,000). Bad Debt Expense is the amount needed to adjust the Allowance for Doubtful Accounts to the estimated uncollectible amount, which is $3,000, regardless of the beginning balance or write-offs.

Abbott Company Uses the Allowance Method of Accounting for Uncollectible