[student007]

Let's say I were to change an estimate for my Allowance of Uncollectable Receivables from 1.75% of credit sales to 1.5% of credit sales. A credit balance of 200 more than 1.5% of my credit sales had built up in my Allowance Account, one so that I would have to do the following entry to reduce its amount so that the balance will equal 1.5% of my credit sales:

Dr. Allowance 200
Cr. Bad Debt Expense 200

Now, my question is: let's say my net income before bad debt expenses is 400. Would my net income after bad debt equal 600? So then that would mean that I won't have any bad debt expenses in this particular year (as the account will have a net credit balance)? Does this make sense? Or, do I do this:

Dr. BDE 1.5% of credit sales
Cr. Allowance 1.5% of credit sales
Dr. Allowance to bring allowance down to 1.5% of credit sales
Cr. BDE to bring allowance down to 1.5% of credit sales