Rgb company uses the percentage of receivables method for recording uncollectible accounts expense. the accounts receivable balance is $100,000 at year-end and the total credit sales were $800,000. management estimates that 4% of receivables will be uncollectible.
what adjusting entry will have to be made if the allowance for uncollectible accounts has a credit balance of $800 before adjustment?

The adjusting entry will be:

Dr Doubtful Debt expenses           $3,200

Cr Allowance for doubtful Debt    $3,200

(to record the estimated allowance for  doubtful debt at the end of the period)  

Explanation:

The balance of Allowance for Doubtful Debt is estimated at 4% of receivables which is calculated as: 100,000 x 4% = $4,000.

Because the balance of Allowance for Doubtful Debt is $800 (credit) before adjustment entry, an entry is needed to rise the balance of Allowance for Doubtful Debt from $800 to $4,000, or Credit $3,200 to Allowance for Doubtful Debt.

As a result, Doubtful Debt expenses will be debited for $3,200 while Allowance for doubtful Debt will be credited for $3,200.

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