Allowance for Doubtful Accounts has a credit balance of $800 at the end of the year (before adjustment), and an analysis of accounts in the customer ledger indicates that the estimated amount of uncollectible accounts should be $16,000. Based on the estimate above, which of the following adjusting entries should be made?
A) debit Bad Debt Expense, $800; credit Allowance for Doubtful Accounts, $800
B) debit Bad Debt Expense, $15,200; credit Allowance for Doubtful Accounts, $15,200
C) debit Allowance for Doubtful Accounts, $800; credit Bad Debt Expense, $800
D) debit Bad Debt Expense, $16,800; credit Allowance for Doubtful Accounts, $16,800

Question

Quizplus · Accepted Answer

The adjusting entry should increase the balance in the Allowance for Doubtful Accounts to match the estimated amount of uncollectible accounts, which is $16,000. Since the Allowance for Doubtful Accounts already has a credit balance of $800, the entry should only increase it by the difference of $15,200. Therefore, the correct entry is to debit Bad Debt Expense for $15,200 and credit Allowance for Doubtful Accounts for $15,200. This will result in a new credit balance of $16,000 in the Allowance for Doubtful Accounts, which matches the estimated amount of uncollectible accounts. Option A and C are incorrect because they do not account for the full estimated amount of uncollectible accounts, and option D overstates the adjustment by including the existing credit balance in the Allowance for Doubtful Accounts.

Allowance for Doubtful Accounts Has a Credit Balance of $800