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At December 31, Amy Jo's Appliances had account balances in Accounts Receivable of $314,000 and in Allowance for Uncollectible Accounts of $590 (credit) before any adjustments. An analysis of Amy Jo's December 31 accounts receivable suggests that the allowance for uncollectible accounts should be 4% of accounts receivable. Bad debt expense for the year should be:

Respuesta :

Bad debt expense for the year should be $11,970

Given :

account balances in Accounts Receivable = $314,000

Allowance for Uncollectible Accounts = $590

allowance for uncollectible accounts should be 4% of accounts receivable.

To Find :

Bad debt expense

Solution :

A bad debt expense is recognized when a receivable is no longer collectible because a customer is unable to fulfill their obligation to pay an outstanding debt due to bankruptcy or other financial problems.

Bad debt expenses are generally classified as a sales and general administrative expense and are found on the income statement.

We first find the balance that should be in the allowance account as of December 31

$314,000 × 4% = $12,560

We subtract the current balance in the allowance account to find the bad debt expense for

$12560 - $590 = $11,970

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