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Carlton Company uses the percent of sales method to estimate its bad debt expense. Based on past experience, the company estimates 2 percent of credit sales to be uncollectible. At the end of the current year, the company's unadjusted trial balance shows Accounts Receivable of $245,000 and Credit Sales of $900,000. Prepare the necessary December 31 adjusting entry by selecting the account names and dollar amounts from the drop-down menus.

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Answer and Explanation:

The Journal entry is shown below:-

Bad debts expense Dr, $18,000 ($900,000 × 2%)

         To Allowance for doubtful accounts $18,000

(Being bad debt expense for the year is recorded)

Here we debited the bad debt expenses as it increased the expenses and we credited the allowance for doubtful accounts as it decrease the value of the assets