Question

All sales are made on credit. Based on past experience, the company estimates that 0.6% of net credit sales are uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?

Answer 1

$4,800

Step-by-step explanation:

the company estimates that 0.6% of total sales will be bad credit, so to determine the amount of bad debts expenses debited at the end of the year: total sales x 0.6% = $800,000 x 0.6% = $4,800

When a company uses the percent of sales method to estimate bad debts, all we need to do is multiply the total amount of credit sales times the estimated percent. In this case, the company sells all its goods on credit, so credit sales = total sales