Question

Flora and Fauna Company estimates its doubtful accounts by aging its accounts receivable and applying percentages to various aged categories of accounts. The Flora and Fauna Company computes a total of $7,200 in estimated doubtful accounts as of December 31, 2016. Its Accounts Receivable account has a balance of $225,600 and its Allowance for Doubtful Accounts has a credit balance of $1,200 before adjustment at December 31, 2016.
Required:
1. How much bad debts expense will Flora and Fauna report in 2016?

Answer 1

Answer:

$6,000

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.

Since the Allowance for Doubtful Accounts has a credit balance of $1,200 before adjustment at December 31, 2016, the additional amount to be allowed

= $7200 - $1200

= $6000

This will be posted as

Debit Bad debt expense  $6000

Credit Allowance for doubtful debt  $6000