A company has $80,000 in outstanding accounts receivables and it uses the allowance method to account for uncollectible accounts.Experience suggests that 5% of outstanding receivables are uncollectible.The current credit balance (before adjustments) in the allowance for doubtful accounts is $600.The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for $4,000.

Question

Quizplus · Accepted Answer

The adjustment should be for $3,400, not $4,000. The estimated uncollectible amount is $4,000 (5% of $80,000), but since there is already a $600 credit balance, only an additional $3,400 is needed.

A Company Has $80,000 in Outstanding Accounts Receivables and It