Question

Superior Company has provided you with the following information before any year-end adjustments:

Net credit sales are $135,500.
Historical percentage of credit losses is 2%.
Allowance for doubtful accounts has a credit balance of $375.
Accounts receivables ending balance is $44,000.

Required:
What is the estimated bad debt expense using the percentage of credit sales method

Answer 1

Answer: $‭2,710‬

Step-by-step explanation:

Using the percentage of credit sales method, the bad debt expense is estimated to be a percentage of the total credit sales of the company and this is subtracted from the credit sales. Any bad debt will then be apportioned to this estimated figure.

Estimated Bad debt expense = Net credit sales * Historical percentage of credit losses

= 135,500 * 2%

= $‭2,710‬