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Tanning Company analyzes its receivables to estimate bad debt expense. The accounts receivable balance is $390,000 and credit sales are $1,300,000. An aging of accounts receivable shows that approximately 5% of the outstanding receivables will be uncollectible. What adjusting entry will Tanning Company make if Allowance for Doubtful Accounts has a credit balance of $2,500 before adjustment?

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TomShelby

Answer:

bad debt expense debit 17,000

allowance for doubful account credit 17,000

Explanation:

again of accounts 5% of AR  

390,000 x 5% = 19,500 expected allowance

current balance  (2,500 credit)

Adjustment       17,000

When the allowance si calculate using aging of percent on receivables, it should be adjusted by the difference the expected balance with the current balance.

The balance should be 19,500 credit

we have 2,500 credit

we should increase the allowance by the difference so it balance after the adjustment equals the expected balance.

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