Question

Assume Simple Co. had credit sales of $250,000 and cost of goods sold of $150,000 for the period. Simple uses the percentage of credit sales method and estimates that 1 percent of credit sales would result in uncollectible accounts. Before the end-of-period adjustment is made, the Allowance for Doubtful Accounts has a credit balance of $250. What amount of Bad Debt Expense would the company record as an end-of-period adjustment?

Answer 1

$2,250

Step-by-step explanation:

The computation of the bad debt expense is shown below:

= Credit sales × estimated percentage - credit balance in allowance for doubtful accounts

= $250,000 × 1% - $250

= $2,500 - $250

= $2,250

For computing the bad debt expense, we simply calculated the estimated value and then deduct the credit balance in allowance for doubtful accounts from that.