On December 31, prior to adjustments, the balance of Accounts Receivable is $28,000 and Allowance for Doubtful Accounts has a debit balance of $200. The firm estimates its losses from uncollectible accounts to be 5.5% of accounts receivable at the end of the year. The adjusting entry needed to record the estimated losses from uncollectible accounts is

Question

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The estimated losses from uncollectible accounts are 5.5% of $28,000, which equals $1,540. Since there is already a $200 debit balance in the Allowance for Doubtful Accounts, the adjustment needs to increase the allowance to the new estimate. Therefore, the adjusting entry should be $1,540 + $200 = $1,740 to bring the allowance account to the correct balance.

On December 31, Prior to Adjustments, the Balance of Accounts