Question

Libre, Inc. has experienced bad debt losses of 5% of credit sales in prior periods. At the end of the year, the balance of Accounts Receivable is $125,000 and the Allowance for Doubtful Accounts has an unadjusted credit balance of $1,750. Net credit sales during the year were $200,000. Using the percentage of credit sales method, what is the estimated Bad Debt Expense for the year?

Answer 1

Bad Debt Expense = $10,000

Step-by-step explanation:

Using the percentage of credit sales method, estimated Bad Debt Expense for the year is

Bad Debt Expense = Net credit sales × Percentage of credit sales uncollectible

Given,

Net credit sales = $200,000

Percentage of credit sales = 5%

Putting the values into the formula, we can get

Bad Debt Expense = Net credit sales × Percentage of credit sales uncollectible

Bad Debt Expense = $200,000 × 5%

Bad Debt Expense = $10,000

As the company is using the Percentage of credit sales method, they do not need to adjust Allowance for Doubtful Accounts.