The Allowance for Bad Debts account has a credit balance of $2,000 before the adjusting entry for bad debts expense. The company's management estimates that 2% of net credit sales will be uncollectible for the year 2019. Net credit sales for the year amounted to $270,000. What will be the balance of Allowance for Bad Debts on the December 31, 2019 balance sheet?

Question

Quizplus · Accepted Answer

The estimated bad debt expense for the year would be 2% of net credit sales, which is $5,400 ($270,000 x 2%). To adjust the balance of Allowance for Bad Debts, we need to increase it by $3,400 ($5,400 - $2,000). Therefore, the new balance of Allowance for Bad Debts will be $5,400 + $3,400 = $7,400. Therefore, the correct answer is C.

The Allowance for Bad Debts Account Has a Credit Balance