[pollywolly]

I get how to do this when there is a Cr bal but I not sure when there is a Db balance.
Question: A/R 90,000, Sales 970,000
If allowance for Doubtful acct. has Db balance of $600 in the trial balance, record the adj. entry at Dec 31, assuming bad debts are estimated to be (1) 0.5% of net sales & (2) 5% of A/R. (T. accts)

Under the T account do I put the $600 on the left of Allowance for Doubtful Acct. and then subtract it from the adj bal on the right? I need to see an example to get it in my head.
Thanks anyone

[Ghc318]

Allowance for bad debt has Debit balance of 600 but needs a credit balance of 8,750 (4,500 + 4,850) - 600; so the adjustment would be for 9,350 (allowance for debt in sales + allowance for debt in A/R)
Dr. Bad Debt Expense
Cr. Allowance for Bad debt

[morgaine300]

Allowance for bad debt has Debit balance of 600 but needs a credit balance of 8,750 (4,500 + 4,850) - 600; so the adjustment would be for 9,350 (allowance for debt in sales + allowance for debt in A/R)
Dr. Bad Debt Expense
Cr. Allowance for Bad debt

Um, no.

These are two different methods of figuring the bad debt. You can't add them together. And the two methods don't work the same way.

[morgaine300]

I think this is getting on the old side but the first answer needs to be corrected.

pollywolly, I'm not sure what you're actually saying. The 600 debit balance does go in the left side, since debit has always been the left side. But I'm not sure if you're getting that it's the balance prior to doing the entry, or if you think that is part of the entry. The problem is asking for the entry, meaning you don't need to put the 600 anywhere because it's already there. You can put it in a t account on scrap paper if you like, just to visualize it, but it's a balance and not part of the entry.

That's the balance at year-end before the adjusting entry is done.

You've got two different methods here and they're done differently. Both of them (as presented here anyway) will involve getting the percentages first.

However, in the percent of sales method, the answer you get is what goes into the entry. The entry always credits that account. If it had a credit balance in it, it would add (just like two credits should), but since it was a debit balance (negative to this account), it's going to be a subtraction and the balance will end up on the credit side. This may be the first time you've seen a negative balance in an account. Just keep in mind that debits add, credits add, but a debit and a credit subtract and the answer is on the side of the bigger one. This has always been true.

The receivables method is different. The answer you get from the % is the balance you want to have in the allowance account. That is a different thing. So now you have a debit 600 balance, and you have to figure out what needs to be credited to that account in order to get to that balance. It's a bit like asking, well I had a negative 300 in my checking account (shame on you), and now I have a balance of positive 200. How much did I deposit?