A firm reported net credit sales of $960,000 for the year and an Accounts Receivable balance of
$120,000 at year-end. Prior to adjustments, Allowance for Doubtful Accounts has a debit balance of $820. The firm estimates its losses from uncollectible accounts to be one-half of 1 percent of net credit sales.
-The balance in Allowance for Doubtful Accounts after adjustment is:

Question

A firm reported net credit sales of $960,000 for the year and an Accounts Receivable balance of
$120,000 at year-end. Prior to adjustments, Allowance for Doubtful Accounts has a debit balance of $820. The firm estimates its losses from uncollectible accounts to be one-half of 1 percent of net credit sales. 
-The balance in Allowance for Doubtful Accounts after adjustment is:

Quizplus · Accepted Answer

The firm estimates its losses from uncollectible accounts to be 0.5% of net credit sales, which is $960,000 * 0.005 = $4,800. Since the Allowance for Doubtful Accounts has a debit balance of $820 before adjustments, this amount needs to be offset first before adding the estimated losses. Therefore, the adjusted balance is $820 (to bring the balance to $0) + $4,800 (estimated losses) = $5,620. However, the question asks for the balance in the Allowance for Doubtful Accounts after adjustment, which means we only consider the final expected credit balance in the account, which is the $4,800 estimate for losses, not the process of offsetting the initial debit balance. Thus, the correct calculation should directly consider the estimated loss of $4,800 as the new balance in the Allowance for Doubtful Accounts, indicating a mistake in my explanation process. The correct balance, considering the estimation method provided, should indeed reflect the calculated loss estimate without needing to adjust for the initial debit balance in the explanation.

A Firm Reported Net Credit Sales of $960,000 for the Year