The unadjusted trial balance at year-end for a company that uses the percent of receivables method to determine its bad debts expense,reports the following selected amounts: All sales are made on credit.Based on past experience,the company estimates 3.5% of ending account receivable to be uncollectible.What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

Question

Quizplus · Accepted Answer

The estimated bad debt expense is calculated as 3.5% of ending accounts receivable. Therefore, bad debts expense is 3.5% x $470,000 = $16,450. 
To record this estimated expense, we must increase (debit) the bad debts expense account and decrease (credit) the allowance for doubtful accounts by the same amount. This results in an adjusting entry of: 
Debit Bad Debts Expense $16,450
Credit Allowance for Doubtful Accounts $16,450

Therefore, the correct answer is option C.

The Unadjusted Trial Balance at Year-End for a Company That