Question

During the​ year, credit sales amounted to​ $820,000. Cash collected on credit sales amounted to​ $780,000, and​ $15,000 has been written off. At the end of the​ year, the company adjusted for bad debts expense using the​ percent-of-sales method and applied a​ rate, based on past​ history, of​ 2.5%. The ending balance in the Allowance for Bad Debts is​ ________.

Answer 1

The ending balance in the Allowance for Bad Debts is​ 20,500 CREDIT

Step-by-step explanation:

The ending balance of Allowance for bad debts would be the 2.5% of sales

The adjustment is made to get the allowance for Bad Debt match the estimate uncollectible ammounts.

Notice it state "company adjusted for bad debt expense"

This means it debit this account as much as it needed to be to make allowance match the estimate allowance.

The write-off are transaction durign the period. They are irrelevant

So the ending balance is:

2.5% of credit sales of 820,000 = $20,500

It is important to remember that Allowance is a counter-asset account. His normal balance is credit, so the final balance is credit.