A company has $107,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 5% of outstanding receivables are uncollectible. The current balance (before adjustments) in the allowance for doubtful accounts is a (n) $970 debit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for: $4,600

$5,400

$6,200

$6,800

None of these

what would be the correct answer choice?

None of these

what would be the correct answer choice?

Assuming 5% of outstanding accounts receivable, the journal entry:

Dr Bad Debt Expense $ 6.320

Cr Allowance for Uncollectible Accounts $ 6.320

Explanation:

If the company applies the allowance method, it means that the account

Allowance for Uncollectible Accounts must show as balance the 5% of outstanding receivables as debit.

Because the company has a credit balance in that account it's necessary to register an entry that compensate the value as credit and reflect as debit the value estimated as 5% of account receivable.

Initial Balance

Dr Accounts Receivable $ 107,000

Dr Allowance for Uncollectible Accounts $ 970

The journal entry adjustment will be:

Dr Bad Debt Expense $ 6,320

Cr Allowance for Uncollectible Accounts $ 6,320

FINAL Balance

Dr Accounts Receivable $ 107,000

Cr Allowance for Uncollectible Accounts $ 5,350