What is the journal entry required if the determined balance for Allowance for Doubtful Accounts is $5,000 and the current balance is $200?

In this scenario, the objective is to adjust the Allowance for Doubtful Accounts to reach the determined balance of $5,000 from its current balance of $200. This requires a journal entry that calculates the difference needed to adjust the allowance.

The difference between the desired balance and the current balance is calculated as follows:

Desired balance - Current balance = $5,000 - $200 = $4,800

The proper accounting treatment involves recognizing this difference as an expense, which is recorded as Bad Debt Expense. Therefore, a debit of $4,800 is made to Bad Debt Expense, thereby increasing the expense on the income statement, reflecting the anticipated uncollectible accounts.

Correspondingly, the Allowance for Doubtful Accounts is credited by the same amount, $4,800, which increases the allowance account to the required balance of $5,000. This aligns perfectly with the principles of matching expenses with the revenues they help to generate, providing a more accurate picture of expected credit losses.

This journal entry effectively updates the Allowance for Doubtful Accounts to accurately reflect the estimated uncollectible accounts while adhering to proper accounting practices.