Using the percentage-of-receivables basis, the uncollectible accounts for the year is estimated to be $38,000. If the balance for the Allowance for Doubtful Accounts is a $7,000 credit before adjustment, what is the amount of bad debt expense for the period?

Question

Quizplus · Accepted Answer

The formula for bad debt expense using the percentage-of-receivables method is:
Bad Debt Expense = Ending Accounts Receivable Balance x Estimated Uncollectible Percentage - Allowance for Doubtful Accounts (before adjustment)
We are given the estimated uncollectible accounts as $38,000 and the Allowance for Doubtful Accounts balance before adjustment as a $7,000 credit. 
Let x be the ending accounts receivable balance.
$38,000 = x * (uncollectible percentage)
We are not given the uncollectible percentage, so we cannot solve for x directly. However, we know that the Allowance for Doubtful Accounts needs to end up as a $38,000 credit after adjustment (to match the estimated uncollectibles). Since it currently has a balance of a $7,000 credit, we need to increase it by $31,000. This means the bad debt expense for the period is also $31,000 ($31,000 = x * uncollectible percentage - $7,000 and we want to solve for the unknown factor x*uncollectible percentage).

Using the Percentage-Of-Receivables Basis, the Uncollectible Accounts for the Year