The following information is available for Murphy Company: As a result of a review and aging of accounts receivable in early January 2015, it has been determined that an allowance for doubtful accounts of $11,000 is needed at December 31, 2014. What amount should Murphy record as "bad debt expense" for the year ended December 31, 2014?

Question

The following information is available for Murphy Company:  As a result of a review and aging of accounts receivable in early January 2015, it has been determined that an allowance for doubtful accounts of $11,000 is needed at December 31, 2014. What amount should Murphy record as "bad debt expense" for the year ended December 31, 2014?

Quizplus · Accepted Answer

The necessary allowance for doubtful accounts at December 31, 2014 is $11,000. This means that $11,000 worth of accounts receivable is estimated to be uncollectible. To record this necessary allowance, Murphy Company must increase their allowance for doubtful accounts by $11,000. This would be done through a credit to the allowance for doubtful accounts account on the balance sheet. The corresponding debit would be to an expense account, called bad debt expense, on the income statement. Therefore, the amount of bad debt expense recorded for the year ended December 31, 2014 would also be $13,000 (11,000 increase in allowance for doubtful accounts from the current balance of $2,000).

The Following Information Is Available for Murphy Company: as a Result