Question

Stello Co. uses the percentage of credit sales method to determine its bad debt expense. All sales are made on credit. At the end of the current year, the company's net credit sales were $900,000, the balance in Accounts Receivable was $655,000, and the debit balance in Allowance for Doubtful Accounts was $800. Based on past experience, the company estimates 0.6% of net credit sales to be uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared

Answer 1

$5,400

Step-by-step explanation:

The amount that should be debited to bad debt expense is shown below:

= Net credit sales × uncollectible percentage

= $900,000 × 0.6%

= $5,400

We simply multiplied the net credit sales with the uncollectible percentage so that the bad debt expense should be computed and the same is to be considered

hence, the bad debt expense is $5,400