Question

Abbott Company uses the allowance method of accounting for uncollectible accounts. Abbott estimates that 3% of credit sales will be uncollectible. On January 1, Allowance for Doubtful Accounts had a credit balance of $3,700. During the year, Abbott wrote off accounts receivable totaling $2,500 and made credit sales of $115,000. There were no sales returns during the year. After the adjusting entry, the December 31 balance in Bad Debt Expense will be

Answer 1

Answer:Bad debts expense = $3,450

Step-by-step explanation:Bad debt expense is the expense of account receivable that a business understands will not be paid due to the inability of a customer to pay its outstanding debt. Bad debt can be calculated using the direct write off method and the allowance method.

Here Abbot company uses the allowance method by taking into consideration a reserve which is an estimated percentage of the sales known as an adjusted risk for its customers who may not pay.

Credit sales revenue 115, 000

Estimated Bad debt 3%

Bad debts expense 3% x 115,000 = $3,450