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On December 31, 2015, Mark Inc. estimates future bad debts to be $6,500. The Allowance for Uncollectible Accounts has a credit balance of $2,500 before any year-end adjustment. What adjustment should Mark Inc. record for the estimated bad debts on December 31, 2015?

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jepessoa

Answer:

  • Dr Bad Debt expense 4,000
  • Cr Allowance for Uncollectible Accounts account 4,000

Explanation:

The ending balance of the Allowance for Uncollectible Accounts account should equal $6,500. Currently the account's balance is just $2,500, so you need to credit $4,000 more to that account in order for its ending balance to equal the bad debts expense.

So you should record the following:

  • Dr Bad Debt expense 4,000
  • Cr Allowance for Uncollectible Accounts account 4,000

Since bad debts is an expense, when it increases it should be debited.

Since allowance for uncollectible accounts is a contra asset account, when it increases it should be credited.

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