Question

Flash Co. uses the allowance method to account for bad debts. At the end of 2010, Flash Co.'s unadjusted trial balance shows an accounts receivable balance of $45,000; allowance for doubtful accounts balance of $400 (debit); and sales of $1,500,000. Based on history, Flash estimates that bad debts will be 0.5% of sales. The entry to record estimated bad debts will include an debit to Bad Debts Expense in the amount of:

Answer 1

7500

Step-by-step explanation:

Answer 2

$7,500

Step-by-step explanation:

Data given in the question

Balance of the account receivable = $45,000

Allowance for doubtful account balance = $400 debit

Sales = $1,500,000

Estimated percentage is 0.5% of sales

So, the estimated bad debt expense is

= Sales revenue × estimated percentage

= $1,500,000 × 0.5%

= $7,500

The journal entry is as follows

Bad debt expense A/c Dr $7,500

To Allowance for doubtful debts $7,500

(Being bad debt expense is recorded)