A company has $321,000 in credit sales. The company uses the allowance method to account for uncollectible accounts. The Allowance for Doubtful Accounts now has an $8,150 debit balance. If the company estimates 5% of credit sales will be uncollectible, what will be the amount of the journal entry to record estimated uncollectible accounts?

Question

Quizplus · Accepted Answer

The estimated uncollectible accounts based on 5% of $321,000 in credit sales is $16,050 ($321,000 * 5%). The Allowance for Doubtful Accounts has a debit balance of $8,150, which is unusual as it normally has a credit balance. To adjust the balance to the correct estimated amount of $16,050, the company needs to record a journal entry for the difference, which is also $16,050. This entry will offset the existing debit balance and establish the correct new allowance balance.

A Company Has $321,000 in Credit Sales