Question

ABC Corp. has outstanding accounts receivable totaling $6.5 million as of December 31 and sales on credit during the year of $24 million. There is also a credit balance of $12,000 in the allowance for doubtful accounts. If the company estimates that 6% of its outstanding receivables will be uncollectible, what will be the amount of bad debt expense recognized for the year

Answer 1

$378,000

Explanation:

The computation of the bad debt expense for the year is shown below:

Bad debt expense = Outstanding account receivable × estimated percentage given - credit balance of allowance for doubtful account

= $6,500,000 × 0.06 - $12,000

= $390,000 - $12,000

= $378,000

We simply deduct the credit balance from the estimated balance so that the correct amount could arrive