Question

Use the following information for calendar year 2020: Accounts receivable, January 1 $125,000 Credit sales during the year 1,400,000 Allowance for doubtful accounts, January 1 15,000 Cash collected on accounts receivable during the year 1,350,000 If the allowance for doubtful accounts is estimated at 10% of the ending accounts receivable balance, what is the bad debts expense for 2020

Answer 1

See below

Step-by-step explanation:

Given the information above, first we need to compute ending balance of account receivables.

Ending balance of account receivables = Beginning balance + Credit sales - Customer's account collected - Write off amount

= $125,000 + $1,400,000 - $1,350,000 - $0

= $175,000

The year end balance in the allowance for uncollectible account would be

= $175,000 × 10%

= $17,500

Now, the bad debt expense

= Year end balance of allowance for uncollectible account - Beginning balance of allowance for doubtful accounts + Written off

= $17,500 - $15,000 + $0

= $2,500