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The Company’s year-end unadjusted trial balance shows accounts receivable of $104,000, allowance for doubtful accounts of $650 (credit), and sales of $330,000. Uncollectibles are estimated to be 1.50% of accounts receivable. 1. Prepare the December 31 year-end adjusting entry for uncollectibles.

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jafransp

Answer:

See explanation section

Explanation:

December 31    Bad debt expense     Debit    $910   (Note-1)

                       Allowance of doubtful accounts   Credit   $910

As the Uncollectibles are estimated to be 1.50% of accounts receivable, total uncollectibles are = $104,000 × 1.50% = $1560.

As the Allowance of doubtful accounts is a contra-entry (Credit side) and has a positive balance of $650, we have to reduce that $650 from $1,560 to adjust the income statement balance.