Manning Company uses the percentage of receivables method for recording bad debts expense. The accounts receivable balance is $200,000 and credit sales are $1,000,000. Management estimates that 5% of accounts receivable will be uncollectible. What adjusting entry will Manning Company make if the Allowance for Doubtful Accounts has a credit balance of $2,000 before adjustment

Dr. Bad Debt Expense                         $8,000

Cr. Allowance for Doubtful Accounts $8,000

Explanation:

Bad debt Expense will be calculated using the percentage of debt loss. The expense will be calculated using the account receivable balance.

Closing Value of the Allowance for Doubtful Accounts will be as follow

Closing Balance = $200,000 x 5% = $10,000

As the Allowance for Doubtful Accounts already has $2,000 credit balanced we need to adjust the balance to make it $10,000 credit balance.

Adjustment = $10,000 - $2,000 = $8,000

Debit bad debt $8000

Credit allowance for doubtful account  $8000

Explanation:

Account receivable balance = $200,000

Credit sales $1,000,000

Uncollectible estimate =  5% of account receivable

5% *200000 = $10,000

Allowance for doubtful account = $2000

Adjustment entry = $10,000-$2,000 = $8000

Adjusting entry Dr bad debts $8000

Credit allowance for  doubtful account - $8000

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