Question

Sully Corp uses an income statement approach for account for bad debt expense. Sully estimates that 2% of sales will eventually become uncollectible. If Sully has $100,000 of sales during the year the adjustment for estimated uncollected accounts will require a ____________.

Answer 1

The adjustment for estimated uncollected accounts will require a $2,000 deduction from Sully Corp's sales.

Step-by-step explanation:

To calculate the adjustment for estimated uncollected accounts, we use the percentage provided by Sully Corp, which is 2%. First, determine 2% of the total sales by multiplying the sales figure by 2% (expressed as 0.02). Thus, $100,000 × 0.02 = $2,000.

This $2,000 represents the estimated amount of uncollectible accounts based on the income statement approach used by Sully Corp. It is deducted from the sales figure to arrive at the adjusted net sales figure for the period.

This adjustment is made to ensure that the financial statements accurately reflect the expected uncollectible accounts based on the estimate provided.