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Ch(3) : Accounting for Receivable69The total estimated bad debts for EssaCompany (BD9,400) represent the amount of existing customerclaims the company expects to beuncollectible in the future. This amount represents the required balance in allowance for doubtful accounts at the balance sheet date. The amount of the bad debt expenseis the difference between the required balance and the existing balance in the allowance account.If the trail balance shows allowance for doubtful accounts with a credit balance of BD2,400, The Company will make an adjusting entry for BD7,000 (BD9,400 %u2013BD2,400) as shown.DateExplanationDebitCreditDec,31Bad Debts Expense7,000Allowance for Doubtful Accounts7,000Post to the T. accounts are:After the adjusting entry is posted, the accounts will show the following.Bad Debt Expense Allowance for Doubtful AccountsDec 31 7,000 Bal. 2,400Dec 31 7,000Bal. 9,400Occasionally the allowance account may have a debit balancepriorto adjustment. This occurs when write-offs during the year have exceeded previous provisions for bad debts. In such a case, the company adds the debit balance to the required balance when it makesthe adjusted entry.Notes:If allowance for doubtful accountsas a percentage of account receivable:1-Bad Debts Expense = (Account Receivable%u00d7 %) %u2013Credit balance of allowance.2-Bad Debts Expense = (Account Receivable%u00d7 %) +Debitbalance of allowance.