A company has $314,000 in credit sales. The company uses the allowance method to account for uncollectible accounts. The allowance for doubtful accounts now has a $1,890 debit balance. If the company estimates that $8,160 of accounts will be uncollectible based on an aging of accounts receivable, what will be the amount of the journal entry to record estimated uncollectible accounts?
To calculate the amount of the journal entry to record estimated uncollectible accounts, we need to follow a few steps:
Step 1: Determine the desired ending balance of the allowance for doubtful accounts. In this case, the desired ending balance is based on the estimated uncollectible accounts of $8,160.
Step 2: Calculate the adjustment needed to reach the desired ending balance. The adjustment can be calculated by finding the difference between the desired ending balance and the current balance of the allowance for doubtful accounts. In this case, the current balance is a debit of $1,890, and the desired ending balance is $8,160. So the adjustment needed is $8,160 - (-$1,890) = $10,050.
Step 3: Record the journal entry to adjust the allowance for doubtful accounts. Since the current balance of the allowance for doubtful accounts is a debit, we need to increase the balance by the adjustment amount to reach the desired ending balance. Therefore, the journal entry will be:
Debit - Allowance for Doubtful Accounts: $10,050
Credit - Bad Debts Expense: $10,050
By recording this journal entry, we are increasing the allowance for doubtful accounts and recognizing the estimated uncollectible accounts as an expense.