In 2010 Wilkinson Company had net credit sales of $1,125,000. On January 1, 2010

Question

In 2010 Wilkinson Company had net credit sales of $1,125,000. On January 1, 2010, Allowance for Doubtful Accounts had a credit balance of $27,000. During 2010, $45,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivables basis). If the accounts receivable balance at December 31 was $300,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2010?

Explanation / Answer

When using the percentage of receivables allowance method for estimating bad debts, the credit balance in Allowance for Doubtful Accounts AFTER the adjustment must equal the amount that is estimated to be uncollectible. Allowance for Doubtful Accounts had a credit balance of 27,000. After the write-off of $45,000: Dr Allowance for Doubtful Accounts 45,000 Cr Accounts Receivable 45,000 There is now a debit balance of $18,000 in Allowance for Doubtful Accounts. The amount that is estimated to be uncollectible is 300,000 x 10% = $30,000. So you have to make an entry that will convert that debit balance of 18,000 to a credit balance of 30,000. Dr Bad Debt Expense 48,000 Cr Allowance for Doubtful Accounts 48,000

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