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RyTronics uses the percentage of receivables method for estimating bad debts expense. The Accounts Receivable balance is $100,000 at year-end and the total credit sales were $800,000. Management estimates that 4% of receivables will be uncollectible. What adjusting entry will be recorded if the Allowance for Doubtful Accounts has a credit balance of $800 before adjustment

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Explanation:

The adjusting journal entry is as follows

Bad Debts Expense  Dr. $3,200

              To Allowance for Doubtful Accounts $3,200

(Being the bad debt expense is recorded)

The computation is shown below:

= Account receivable balance × estimated percentage - credit balance of allowance for doubtful debts

= $100,000 × 4% - $800

= $4,000 - $800

= $3,200

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