Assume that the allowance account has a debit balance of $7,000 at the end of the year, before adjustments. If the estimate of uncollectible accounts based on aging the receivables is $10,000, the amount of the adjusting entry for uncollectible accounts would be:
To calculate the adjusting entry for uncollectible accounts, we need to determine the difference between the current balance in the allowance account and the estimated uncollectible accounts.
In this case, the allowance account has a debit balance of $7,000 before adjustments, and the estimate of uncollectible accounts is $10,000.
Since the estimate of uncollectible accounts is higher than the current balance in the allowance account, we can conclude that an adjustment is needed to increase the allowance account.
To calculate the adjusting entry, we subtract the current allowance account balance from the estimated uncollectible accounts:
$10,000 - $7,000 = $3,000
Therefore, the amount of the adjusting entry for uncollectible accounts would be $3,000. This adjustment increases the allowance account balance to properly account for potential uncollectible accounts.