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2 February, 08:46

At the end of the year, Mercy Cosmetics' balance of Allowance for Uncollectible Accounts is $830 (debit) before adjustment. The balance of Accounts Receivable is $27,300. The company estimates that 9% of accounts will not be collected over the next year. What is the adjustment Mercy Cosmetics would record for Allowance for Uncollectible Accounts?

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  1. 2 February, 11:07
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    The journal entry showing the adjustment is shown as:

    Dr bad debt expense $3287

    Cr Allowance for uncollectible accounts $3287

    Explanation:

    The company estimate of uncollectible account this year is calculated by multiplying the percentage of uncollectible accounts by the balance in the accounts receivable.

    Hence, estimate of uncollectible account is 9%*$27,300=$2457

    The estimate of $2457 implies that the balance in the allowance for uncollectible accounts should be $2457 credit balance as at the end of the year.

    In order to achieve that, reverse the debit balance of $830 in the account by posting a credit of $830, that takes the account to nil, then post a new allowance for uncollectible accounts ($2457 credit entry)

    Without mincing words, the adjusting entries passed is the sum of the two credit entries of $3287
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