Tanning Company analyzes its receivables to estimate bad debt expense. The accounts receivable balance is $284,000 and credit sales are $1,000,000. An aging of accounts receivable shows that approximately 7% of the outstanding receivables will be uncollectible. What adjusting entry will Tanning Company make if Allowance for Doubtful Accounts has a credit balance of $2,600 before adjustment?

Debit Bad debt expense $17,280

Credit Allowance for doubtful debt  $17,280

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.

Allowance required = 7% * $284,000

= $19,880

Amount to be adjusted = $19,880 - $2,600

= $17,280

(a) when insurance is obtained through a reciprocal insurer, the insureds are sharing the risk of loss with other subscribers of that reciprocal.

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