[Lily Juell]

Foster Co. adjusted its allowance for uncollectible accounts at year-end. The general ledger balances for accounts receivable and the related allowance account were $1,000,000 and $40,000, respectively. Foster uses the percentage-of-receivables method to estimate its allowance for uncollectible accounts. Accounts receivable were estimated to be 5% uncollectible. What amount should Foster record as an adjustment to its allowance for uncollectible accounts at year-end?

The answer is $10,000 increase. The solution shows that Bad debt is expense is debited $10,000 and allowance for uncollectible accounts is credited $10,000.

Wouldn’t the answer be a $10,000 decrease to allowance for uncollectible account, since $10,000 is credited to this account??? I’m confused

[Anonymous]

The Allowance for Doubtful Accounts is a contra asset account which has a credit balance. So the increase would be a credit.

JE:

Bad Debt $10,000db

Allow Doubtful acct $10,000cr

[Author]

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