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$363,000debit Allowance for uncollectible accounts 580debit Net Sales 808,000credit 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

$4,848 will be the amount that should be debited to Bad debts expense when the adjusting entry is being prepared for the year end.

Step-by-step explanation:

Since the company uses percentage of sales method for calculating bad debt, it therefore means that the bad debt expense for the year will not be charged from the opening balance of allowance for uncollectible accounts but will be charged as Net credit sales × percentage of uncollectible from credit sales.

Therefore, bad debt for the period is charged as Net credit sales × Percentage of uncollectible from credit sales

= $808,000 × 0.6%

= $4,848

Therefore, the adjusting entry for bad debt expenses at year end is;

Bad debt expense Dr $4,848

Allowance for uncollectible accounts Cr $4,848