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, we need to consider the current balance in the account and the desired balance based on the aging of accounts receivable.
In this case, the current unadjusted balance in the Allowance for Doubtful Accounts is a credit balance of $28,000, and the desired balance based on the aging of accounts receivable is $98,000. This means we need to increase the allowance by the difference between these two amounts.
To adjust the allowance, we need to debit the Allowance for Doubtful Accounts by the amount of the increase. Since we are increasing the allowance, we record this as a debit to the account.
The journal entry would be as follows:
Debit: Allowance for Doubtful Accounts $70,000
Credit: (No specific account mentioned in the question)
The credit side of the entry would depend on whether we are recording this adjustment as an expense or reducing the accounts receivable value. Typically, a contra-asset account called "Bad Debt Expense" is used to record the expense associated with the increase in the allowance. So, we could credit "Bad Debt Expense" for $70,000 in this case.
However, without further information mentioned in the question, it is not possible to determine the exact credit account. The credit side of the entry could vary depending on the specific accounting practices of Schmaltz, Inc. or any other relevant information provided.
It is important to consult the company's accounting policies or a professional accountant to ensure the accurate recording of this adjustment.