Question

A company uses the percent of sales method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts: Accounts receivable $ 358,000 debit Allowance for uncollectible accounts 530 debit Net Sales 803,000 credit All sales are made on credit. Based on past experience, the company estimates that 0.3% 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

Debit Bad Debts Expense $2,939; Credit Allowance for Doubtful Accounts $2,939

Step-by-step explanation:

Estimated Uncollectibles based on the past experience = $803,000 * 0.3%

=$2,409

Debit balance in allowance for doubtful accounts = $530

The total amount of Bad Debts Expense to be provided in the adjusting entry = $2,409 + $530

= $2,939