During the year, Spirit Fun had net credit sales of $800,000. Past experience shows that 1.5 percent of the firm's net credit sales will be uncollectible. Determine the adjusting entry needed to recognize the estimated expense for these uncollectible accounts.
A)debit Uncollectible Accounts Expense $12,000 and credit Accounts Receivable $12,000.
B)debit Uncollectible Accounts Expense $12,000 and credit Allowance for Doubtful Accounts
$12,000.
C)debit Uncollectible Accounts Expense $120,000 and credit Allowance for Doubtful Accounts
$120,000.
D)debit Allowance for Doubtful Accounts $12,000 and credit Accounts Receivable $12,000.

Question

Quizplus · Accepted Answer

According to the percentage given in the question, the estimated expense for uncollectible accounts would be $12,000 (1.5% of net credit sales of $800,000). To recognize this expense, we need to debit Uncollectible Accounts Expense and credit Allowance for Doubtful Accounts, which is a contra asset account used to estimate the amount of uncollectible accounts. Option A and D do not consider the contra asset account, and option C overstates the estimated expense by using the full amount of net credit sales instead of the percentage. Therefore, option B is the best choice.

During the Year, Spirit Fun Had Net Credit Sales of $800,000