Question

Abbott Company uses the allowance method of accounting for uncollectible accounts. Abbott estimates that 3% of credit sales will be uncollectible. On January 1, Allowance for Doubtful Accounts had a credit balance of $2,400. During the year, Abbott wrote off accounts receivable totaling $1,800 and made credit sales of $100,000. There were no sales returns during the year. After the adjusting entry, the December 31 balance in Bad Debt Expense will be

Answer 1

Answer:

Year end balance for bad debt expense will be 0, but amount for this entry will be $2,400

Explanation:

Opening balance of allowance for doubtful debts = $2,400

Amount written off during the year = $1,800

For this entry would be

Allowance for doubtful debts Dr.            $1,800

 To Accounts Receivables                                    $1,800

Therefore bad debts expense account is not hit in this transaction.

At year end allowance balance for bad debts shall be $100,000 $\times$ 3% = $3,000

Balance in allowance for doubtful debts before entry = $2,400 - $1,800 = $600 credit

Closing balance should be $3,000

Amount to be credited = $3,000 - $600 = $2,400

Therefore balance of bad debt expense will be $2,400

Entry for the above will be on 31 December as follows:

Bad Debt Expense A/c Dr.                    $2,400

         To Allowance for Doubtful Debts                 $2,400

But after passing this entry this amount of bad debt expense will be transferred to Income Statement

Income Statement       Dr.            $2,400

 To Bad Debt Expense                             $2,400

Therefore year end balance for any expense same as bad debt expense will be 0, but amount for this entry will be $2,400