Gross Accounts Receivable is $21,000. Allowance for Doubtful Accounts has a credit balance of $600. Net credit sales for the year are $132,000. In the past, 3% of credit sales had proved uncollectible, and an aging of the receivables indicates $1,800 is doubtful. Under the balance sheet approach, Bad Debts Expense for the year is:
A) $2,400.
B) $4,560.
C) $3,960.
D) $1,200.

Question

Quizplus · Accepted Answer

Under the balance sheet approach, the focus is on adjusting the Allowance for Doubtful Accounts to the desired ending balance. The desired ending balance, based on an aging of the receivables, is $1,800. Since the Allowance for Doubtful Accounts already has a credit balance of $600, an additional $1,200 (i.e., $1,800 desired balance - $600 existing balance) needs to be added to the allowance. This additional amount is recognized as Bad Debts Expense for the year.

Gross Accounts Receivable Is $21,000