A company's unadjusted trial balance at the end of the year includes the following:

The company uses the aging of accounts receivable method.Its estimate of uncollectible receivables resulting from the aging analysis equals $5,800.What is the amount of Bad Debt Expense to be recorded for the year?
A) $5,800
B) $4,800
C) $6,800
D) $7,800

Question

A company's unadjusted trial balance at the end of the year includes the following:

The company uses the aging of accounts receivable method.Its estimate of uncollectible receivables resulting from the aging analysis equals $5,800.What is the amount of Bad Debt Expense to be recorded for the year?
A) $5,800 
B) $4,800 
C) $6,800 
D) $7,800

Quizplus · Accepted Answer

The aging of accounts receivables method estimates uncollectible receivables based on the length of time they have been outstanding. Using the aging method, the company estimates that $5,800 is the amount of receivables that will ultimately be uncollectible. This amount needs to be recorded as an expense on the income statement under the allowance method.

To calculate the Bad Debt Expense, add the balance in the Allowance for Doubtful Accounts account to the estimated uncollectible receivables and then subtract the balance in the same account from the resulting amount.

$26,500 (balance in the Allowance for Doubtful Accounts) + $5,800 (estimated uncollectible receivables) - $24,500 (beginning balance in the Allowance for Doubtful Accounts) = $8,800.

Therefore, the Bad Debt Expense to be recorded for the year is $6,800 ($8,800 - $2,000, which is the balance in the Bad Debt Expense account before adjustment).

A Company's Unadjusted Trial Balance at the End of the Year