Question

In its first year of business, Volunteer Cakes made $1,000 in credit sales. The company records bad debt expense equal to 6% of credit sales. At the end of its first year of business, the company’s Balance Sheet reports $400 of accounts receivable and $20 of allowance for doubtful accounts. What is the bad debt expense reported on the income statement?

Answer 1

The bad debt expense reported on the income statement is $980.

Step-by-step explanation:

The bad debt expense reported on the income statement can be calculated as the difference between the credit sales and the allowance for doubtful accounts. In this case, the credit sales were $1,000, and the allowance for doubtful accounts was $20. We can use the formula:

Bad Debt Expense = Credit Sales - Allowance for Doubtful Accounts

Bad Debt Expense = $1,000 - $20

Bad Debt Expense = $980

Therefore, the bad debt expense reported on the income statement is $980.