Knelling Company reported a balance in Accounts Receivable of $50,000 and a credit balance of $3,000 in the Allowance for Doubtful Accounts. The company’s aging of accounts receivable determined $12,000 to be uncollectible. Prepare the end-of-period adjusting entry to record bad debt expense.

Dr Bad Debts expense  $12000

               Cr         Allowance for doubtful debts  $12000

Explanation:

Allowance for doubtful debt will increase by $12000, Allowance for doubtful debts account will credited by $12000 to recognise the increase in provision/allowance for doubtful debts. We process the following journal entry to record this increase in uncollectible debts

Dr Bad Debts expense  $12000

Cr          Allowance for doubtful debts  $12000

Dr Bad debt expense 9,000

    Cr Allowance for uncollectible accounts 9,000

Explanation:

If the estimated bad debt for the year is $12,000, and the allowance for doubtful accounts has a credit balance of $3,000, you increase the allowance account  until its balance is $12,000.

The aging of accounts receivable estimates bad debts depending on outstanding customer invoices that are older than a specific threshold, e.g. all uncollected accounts which are older than 6 months are considered bad debt.

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