This exercise will review the two bases for determining the dollar amount of the adjusting entry to recognize bad debt expense and to adjust the Allowance for Doubtful Accounts account.

The trial balance before adjustment at December 31, 2014 for the Liz Company shows the following balances:



Accounts Receivable


Allowance for Doubtful Accounts


Sales (all on credit)


Sales Returns and Allowances



Using the data above, give the journal entries to record each of the following cases (each situation is independent):

  1. The company expects bad debts to be 1 3/4% of net credit sales.
  2. Liz performs an aging analysis at December 31, 2014 which indicates an estimate of $6,000 uncollectible accounts.