On December 31, 2019, Hanks Company's Accounts Receivable balance was of $300,000, and an analysis of their accounts receivable suggests that the Allowance for Doubtful Accounts should be 2% of accounts receivable. The balance in the Allowance for Doubtful Accounts on January 1, 2019 was $5,970. During the year 2019, the company wrote off $6,450 of bad debts.
What amount should be reported as bad debt expense for the year 2019?

Question

Quizplus · Accepted Answer

The bad debt expense for the year can be calculated by adjusting the Allowance for Doubtful Accounts to the desired ending balance based on the analysis of accounts receivable. The desired ending balance is 2% of $300,000, which is $6,000. The beginning balance was $5,970, and $6,450 was written off during the year. To find the bad debt expense, we adjust the beginning balance by adding the bad debt expense and subtracting the write-offs, aiming to reach the desired ending balance. The calculation is as follows: $5,970 (beginning balance) - $6,450 (write-offs) + Bad Debt Expense = $6,000 (desired ending balance). Solving for the Bad Debt Expense gives us $6,480.

On December 31, 2019, Hanks Company's Accounts Receivable Balance Was