At the end of the current year, Accounts Receivable has a debit balance of $825,000, and net sales for the year total $9,000,000.
1. Determine the amount of the adjusting entry to provide for doubtful accounts under each of the following assumptions:
a. The allowance account before adjustment has a credit balance of $12,000. Bad debt expense is estimated at ¼ of 1% of net sales.
b. The allowance account before adjustment has a credit balance of $12,000. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $36,000.
c. The allowance account before adjustment has a credit balance of $12,000. The uncollectible portion of receivables is estimated at 4% of the receivables balance.
d. The allowance account before adjustment has a debit balance of $6,000. Bad debt expense is estimated at ½ of 1% of net sales.
e. The allowance account before adjustment has a debit balance of $6,000. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $49,500.
f. The allowance account before adjustment has a debit balance of $6,000. The uncollectible portion of receivables is estimated at 5% of the receivables balance.
2. In all of the above scenarios, bad debt expense does not match the allowance for doubtful accounts established at the start of the current year. Has the accountant made a mistake? Explain.
3. Identify a few events that might cause a debit balance in the allowance account.