RGB Company uses the percentage of receivables method for recording Uncollectible Accounts Expense. The accounts receivable balance is $100,000 at year-end and the total credit sales were $800,000. Management estimates that 4% of receivables will be uncollectible.

What adjusting entry will have to be made if the Allowance for Uncollectible Accounts has a credit balance of $800 before adjustment?

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Business

Raven Herring

7 November, 06:06

RGB Company uses the percentage of receivables method for recording Uncollectible Accounts Expense. The accounts receivable balance is $100,000 at year-end and the total credit sales were $800,000. Management estimates that 4% of receivables will be uncollectible.

What adjusting entry will have to be made if the Allowance for Uncollectible Accounts has a credit balance of $800 before adjustment?

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Fabian Oconnor · Answer 1

The adjusting entry will be:

Dr Doubtful Debt expenses $3,200

Cr Allowance for doubtful Debt $3,200

(to record the estimated allowance for doubtful debt at the end of the period)

Explanation:

The balance of Allowance for Doubtful Debt is estimated at 4% of receivables which is calculated as: 100,000 x 4% = $4,000.

Because the balance of Allowance for Doubtful Debt is $800 (credit) before adjustment entry, an entry is needed to rise the balance of Allowance for Doubtful Debt from $800 to $4,000, or Credit $3,200 to Allowance for Doubtful Debt.

As a result, Doubtful Debt expenses will be debited for $3,200 while Allowance for doubtful Debt will be credited for $3,200.