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On December 31 of the current year, the unadjusted trial balance of a company using the percent of receivables method to estimate bad debt included the following: Accounts Receivable, debit balance of $98,800; Allowance for Doubtful Accounts, credit balance of $1,121. What amount should be debited to Bad Debts Expense, assuming 5% of outstanding accounts receivable at the end of the current year are estimated to be uncollectible

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Answer:

Amount of Bad debts expenses is $3,819

Explanation:

Estimated balance of allowance for doubtful debts account = Accounts receivables * 5%  

= $98,800 * 5%

= $98,800 * 0.05

= $4,940

Calculation

Estimated balance of allowance for doubtful debts account = $4,940  

Less: Un adjusted credit balance in allowance account  =        ($1,121)

Bad debts expenses=                                                                  $3,819

The un-adjusted credit balance is deducted from the estimated balance of allowance accounts.  The un-adjusted debit balance is added to the estimated balance of allowance accounts. Â