Franks Company has a debit balance of $3,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. Based on review and aging of its accounts receivable at the end of the year, Franks estimates that $60,000 of its receivables are uncollectible. The amount of bad debts expense which should be reported for the year is:

Question

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The bad debts expense is the amount estimated to be uncollectible, which is $60,000. Since the Allowance for Doubtful Accounts already has a debit balance of $3,000, this balance needs to be adjusted to reflect the estimated $60,000 of uncollectible receivables.

To do this, we need to credit the allowance account by $57,000 ($60,000 - $3,000) to bring it up to the needed balance of $60,000.

Therefore, the bad debts expense for the year is $57,000 (credit to Allowance for Doubtful Accounts), plus the existing debit balance of $3,000, for a total of $63,000.

Franks Company Has a Debit Balance of $3,000 in Its