Bramble Corp. uses the percentage of receivables method for recording bad debts expense. The accounts receivable balance is $220000 and credit sales are $2210000. Management estimates that 5% of accounts receivable will be uncollectible. What adjusting entry will Bramble Corp. make if the Allowance for Doubtful Accounts has a credit balance of $4400 before adjustment

the adjusting entry:

Dr Bad debt expense 6,600

    Cr Allowance for doubtful accounts 6,600

Explanation:

accounts receivable balance = $220,000

total credit sales = $2,210,000

estimated uncollectible accounts = $220,000 x 5% = $11,000

allowance for doubtful accounts = $4,400 credit balance

bad debt expense = $11,000 - $4,400 = $6,600

Allowance for doubtful accounts is a contra asset account that reduces the carrying value of accounts receivable account, that is why its normal balance should be a credit balance.

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