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6 June, 13:54

A company has $99,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 4% of outstanding receivables are uncollectible. The current balance (before adjustments) in the allowance for doubtful accounts is a (n) $890 credit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for:

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  1. 6 June, 16:49
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    Dr Bad debt expense 3,070

    Cr Allowance for doubtful accounts 3,070

    Explanation:

    $99,000 in accounts receivables

    4% is considered bad debt

    $99,000 x 4% = $3,960

    the current balance for allowance for doubtful accounts = $890 (credit)

    the adjusting entry for allowance for doubtful accounts = $3,960 - $890 = $3,070

    the journal entry should be:

    Dr Bad debt expense 3,070

    Cr Allowance for doubtful accounts 3,070

    the final balance of the allowance for doubtful accounts = $3,070 + $890 = $3,960
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