Asked by Francies Guzman on May 02, 2024
Verified
A company has $90,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts.Experience suggests that 4% of outstanding receivables are uncollectible.The current balance (before adjustments) in the allowance for doubtful accounts is an $800 credit.The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for:
A) $2,800
B) $3,568
C) $3,632
D) $3,600
E) $4,400
Allowance Method
An accounting technique used to account for bad debts by estimating and recording uncollectible accounts receivable.
Outstanding Receivables
The total amount of money owed to a company by its customers for goods or services delivered but not yet paid for.
Allowance for Doubtful Accounts
A reserve for accounts receivable that may not be collectable, reducing the book value of accounts receivable to a more realistic value.
- Employ the percentage of sales strategy to project expenses from doubtful debts.
Verified Answer
ZK
Zybrea KnightMay 06, 2024
Final Answer :
A
Explanation :
The adjustment needed is calculated as 4% of $90,000, which equals $3,600. Since there's already an $800 credit balance in the allowance account, the adjustment needed is $3,600 - $800 = $2,800. This is the amount that should be debited to Bad Debts Expense to adjust the allowance to the correct level.
Learning Objectives
- Employ the percentage of sales strategy to project expenses from doubtful debts.