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Larkspur, Inc. had net sales in 2020 of $1,447,100. At December 31, 2020, before adjusting entries, the balances in selected accounts were Accounts Receivable $204,600 debit, and Allowance for Doubtful Accounts $1,940 debit. Assume that 11% of accounts receivable will prove to be uncollectible. Prepare the entry to record bad debt expense.

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Answer:

The entry to record bad debt expense:

Debit Bad debts expense $24,446

Credit Allowance for Doubtful Accounts $24,446

Explanation:

1. At December 31, 2020,

Bad debt are estimated: 11% x $204,600 = $22,506

Before adjusting, Allowance for Doubtful Accounts had a debit balance of $1,940. So Bad debt expense will be: $1,940 + $22,506 = $24,446

The adjustment to record Bad debt expense and Allowance for Doubtful Accounts:

Debit Bad debts expense $24,446

Credit Allowance for Doubtful Accounts $24,446

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