At year-end, Chief Company has a balance of $28,000 in accounts receivable of which $2,800 is more than 30 days overdue. Chief has a credit balance of $290 in the allowance for doubtful accounts before any year-end adjustments. Using the aging of accounts receivable method, Chief estimates that 1.5% of current accounts and 9% of accounts over thirty days are uncollectible. What is the amount of bad debt expense?

$340

Explanation:

When a company makes sales on account, debit accounts receivable and credit sales. Based on assessment, some or all of the receivables may be uncollectible.  

To account for this, debit bad debit expense and credit allowance for doubtful debt. Should the debt become uncollectible (i.e go bad), debit allowance for doubtful debt and credit accounts receivable.

If the Company has a balance of $28,000 in accounts receivable of which $2,800 is more than 30 days overdue, amount of receivables below 30 days overdue

= $28,000 - $2,800

= $25,200

Allowance for doubtful debt = (1.5% * $25,200) + (9% * $2,800)

= $378 + $252

= $630

Additional allowance required = $630 - $290

= $340

This is the amount of bad debt as the credit could be posted to allowance for doubtful debt and the debit to bad debt expense account.