Scott’s Plumbing Company uses the allowance method and uses the percent of credit sales method of estimating uncollectible accounts expense. Based on past history and industry averages, ¾% of credit sales are expected to be uncollectible. The Company recorded $3,500,000 of credit sales and $1,000,000 in cash sales during the year. At December 31, the balance of accounts receivable was $250,000 and the allowance for doubtful accounts had a credit balance of $3,500.

At the year end the Allowance for Doubtful accounts will have a debit balance of  $3,500,000-$ 2625000=$ 625000

Required Adjustment in the Allowance for doubtful accounts= $ 2621500

Explanation:

Scott’s Plumbing Company

¾% of credit sales are expected to be uncollectible

Allowance for doubtful accounts=¾% of $3,500,000= $ 2625000

Allowance for doubtful accounts=  $3,500 Credit

Required Adjustment in the Allowance for doubtful accounts= $ 2621500

Credit Sales $3,500,000

Accounts receivable  $250,000

Bad Debts  $ 3250000

At the year end the Allowance for Doubtful accounts will have a debit balance of  $3,500,000-$ 2625000=$ 625000