Question & Answer: The unadjusted trial balance as at December 31, 20×5 shows a credit balance in the doubtful accounts of $35,500. This balance is…..

Canadian Accounting:

The unadjusted trial balance as at December 31, 20×5 shows a credit balance in the doubtful accounts of $35,500. This balance is the December 31, 20×4 balance. During 20×5, several accounts were written off to bad debt expense. A review of the accounts receivable at year-end revealed that an additional $45,000 of accounts should be written off – these accounts are all in the 90 days and over category. The following is an aged listing of accounts at year-end:

Age	Balance	% uncollectible
0-30	$370,000	2%
31-60	225,000	5%
61-90	150,000	10%
90+	135,000	100% on $45,000 of the accounts and 40% on the balance
	$880,000

Required – Prepare the adjusting journal entries to adjust the doubtful accounts balance at December 31, 20×5.

Expert Answer


Estimated bad debts

Age	balance	%	Amount
		uncollectible
0-30	370,000	2%	7400
31-60	225,000	5%	11250
61-90	150,000	10%	15000
90+	90,000	40%	36000
total			69650

Adjustment required for bad debts
opening balance				35,500
less : Account receivable written off				45,000
Debit balance in allowance account				9,500

hence adjustment required for 9,500+69,650=					79,150


Adjusting journal Entry
Date	Accounting titles & Explanations				Debit	Credit

12/31/2015	Bad debts expense				79,150
	Allowance for doubtful accounts					79,150

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