Question

During the year, bad debts expense was charged at a rate of 0.5% of credit sales. At year end, an aging analysis of the accounts receivable indicates that the appropriate allowance for doubtful accounts balance is 3% of the outstanding accounts receivable balance. The most appropriate year-end adjustment (in thousands) to the allowance for doubtful accounts is a(n):

Answer 1

The answer is given below;

Step-by-step explanation:

The most appropriate adjustment will be to reverse the % of sales charged as bad debt expense like;

Allowance for Doubtful Accounts (credit sales*.5%) Dr.$

Bad Debt Expense Cr.$

after reversal following entry will be made;

Bad Debt Expense (Receivable*3%) Dr.$

Allowance for Doubtful Accounts Cr.$

If we are given opening and closing balance of Accounts receivable then we will taken difference of opening and closing balance of allowance for doubtful accounts.