During the year, bad debts expense was charged at a rate of 0.5% of credit sales. At year end, an aging analysis of the accounts receivable indicates that the appropriate allowance for doubtful accounts balance is 3% of the outstanding accounts receivable balance. The most appropriate year-end adjustment (in thousands) to the allowance for doubtful accounts is a(n):

The answer is given below;

Explanation:

The most appropriate adjustment will be to reverse the % of sales charged as bad debt expense like;

Allowance for Doubtful Accounts (credit sales*.5%)          Dr.$

Bad Debt Expense                                                                Cr.$

after reversal following entry will be made;

Bad Debt Expense (Receivable*3%)                      Dr.$

Allowance for Doubtful Accounts                          Cr.$

If we are given opening and closing balance of Accounts receivable then we will taken difference of opening and closing balance of allowance for doubtful accounts.

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