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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

A business has an ending balance in Accounts Receivable of $40,000; credit sales for the year of $500,000; and a debit balance in Allowance for Doubtful Accounts of $300. If an aging analysis indicates that $4,800 should be the balance in Allowance for Doubtful Accounts, the amount to be entered for the adjusting entry is

  1. (a) $4,800.
  2. (b) $4,500.
  3. (c) $5,000.
  4. (d) $5,100.

To determine

Find the correct amount that should be entered for the adjusting entry.

Explanation

Aging of receivables method:

A method of estimating the uncollectible receivables, based on the age of individual accounts receivable, is known as aging of receivables method. Under this method, the estimated bad debts would be treated as a target allowance balance.

Example:

Record the adjusting entry for allowance for doubtful accounts having a debit balance:

DateParticularsDebitCredit
 Bad debt expense$5,100 
    Allowance for doubtful accounts  $5,100
 (To adjust the allowance for doubtful accounts)  

Table (1)

Working note 1:

Calculate the bad debt expense...

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