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25 February, 21:58

Nichols Company uses the percentage of receivables method for recording bad debts expense. The accounts receivable balance is $200,000 and credit sales are $1,000,000. Management estimates that 4% of accounts receivable will be uncollectible. What adjusting entry will Nichols Company make if the Allowance for Doubtful Accounts has a credit balance of $2,000 before adjustment?

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  1. 25 February, 22:40
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    bad debt expense 6,000 debit

    allowance for uncollectible amounts 6,000 credit

    Explanation:

    expected allowance balance:

    account receivable x expected uncollectible amount

    200,000 x 4% = 8,000

    currently the allowance balance is 2,000

    so the amount of the adjustment will be to move the balance to 8,000 from 2,000: adjusting entry for 6,000
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