At year-end, Chief Company has a balance of $10,000 in accounts receivable, of which $9,000 is within 30 days and $1,000 is over 30 days. Using the aging of accounts receivable method, Chief estimates that 1% of accounts within 30 days and 10% of accounts over thirty days are uncollectible. Chief has a credit balance of $100 in the allowance for doubtful accounts before any year-end adjustments. What is the amount of bad debt expense?

Question

Business

Lydia Mcbride

18 July, 08:56

At year-end, Chief Company has a balance of $10,000 in accounts receivable, of which $9,000 is within 30 days and $1,000 is over 30 days. Using the aging of accounts receivable method, Chief estimates that 1% of accounts within 30 days and 10% of accounts over thirty days are uncollectible. Chief has a credit balance of $100 in the allowance for doubtful accounts before any year-end adjustments. What is the amount of bad debt expense?

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Carolyn Stevenson · Answer 1

What is the amount of bad debt expense?

Bad debt expense $ 90

Explanation:

The initial account balance was

Initial Balance

Accounts Receivable $ 10,000

Allowance for Uncollectible Accounts $ 100

The aging of accounts receivable method indicates that the Allowance for Uncollectible Accounts must have a $190 balance.

Acc. Rec Allow.

$ 9,000 $ 90 1% 1-30 days

$ 1,000 $ 100 10% more than 30 days

$ 10,000 $ 190

The journal entry adjustment add up to the balance of Allowance for Uncollectible Accounts to complete the $190 indicated by the aging of accounts receivable method.

Bad debt expense $ 90

Allowance for Uncollectible Accounts $ 90

So the final balance of accounts are:

Final Balance

Accounts Receivable $ 10,000

Allowance for Uncollectible Accounts $ 190