Before adjustment,the allowance for doubtful accounts has a credit balance of $2,700.The company had $140,000 of net credit sales during the period and historically fails to collect 4% of credit sales.The company uses the percentage of credit sales method of estimating doubtful accounts.After adjusting for estimated bad debts,the new balance in the allowance for doubtful accounts account will be:

Question

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The estimated bad debts are 4% of $140,000, which is $5,600. Adding this to the existing credit balance of $2,700 in the allowance for doubtful accounts gives a new balance of $8,300.

Before Adjustment,the Allowance for Doubtful Accounts Has a Credit Balance