Schmaltz, Inc. records its allowance for doubtful accounts based on an analysis of receivables. The current, unadjusted balance in Schmaltz’s Allowance for Doubtful Accounts is a credit balance of $28,000. Based on a year-end aging of accounts receivables, Schmaltz determines that the allowance should be $98,000. What would be the journal entry to adjust the allowance?
To determine the journal entry to adjust the allowance for doubtful accounts, you need to consider the current balance and the desired balance based on the year-end aging analysis.
1. Determine the adjustment amount:
The adjustment amount is calculated by subtracting the current balance from the desired balance.
Adjustment Amount = Desired Balance - Current Balance
Adjustment Amount = $98,000 - $28,000
Adjustment Amount = $70,000
2. Create the journal entry:
To adjust the allowance for doubtful accounts, you need to increase the balance by the adjustment amount. Since the current balance is a credit balance, you will need to debit the account.
The journal entry would be as follows:
Debit: Allowance for Doubtful Accounts $70,000
Credit: Bad Debt Expense $70,000
This journal entry increases the allowance by $70,000 and records the corresponding expense for bad debts.
Note: The specific account names may vary depending on the company's chart of accounts and terminology used.