Question

Chen Company's account balances at December 31, 2010 for Accounts Receivable and the Allowance for Doubtful Accounts are $320,000 debit and $600 credit. Sales during 2010 were $900,000. It is estimated that 1% of sales will be uncollectible. The adjusting entry would include a credit to the allowance account fora. $9,600.b. $9,000.c. $8,400.d. $3,200.

Answer 1

Answer:

Explanation:

Account receivable 320,000 debit

Allowance                       600 credit

Sales 900,000

1% incollectible:

900,000 x 1% = 9,000

The adjusting entry will be for 9,000

As the allowance is calculated for sales of the period, we expected 9,000 during the next period will become uncollectible. We need to recognize the full amount now, or later on, on a different period, we will be generating dab debt expense for this prior period.

Doing the full amount matches the period of the sales, with the uncollectible that could arise from these sales