A company uses the percent of sales method to determine its bad debts expense. Atthe end of the current year, the company's unadjusted trial balance reported thefollowing selected amounts:Accounts receivable$ 362,000 debit Allowance for uncollectible accounts570 credit Net sales807,000 credit All sales are made on credit. Based on past experience, the company estimates 0.3% ofcredit sales to be uncollectible. What adjusting entry should the company make at theend of the current year to record its estimated bad debts expense?

Question

Thalia Copeland

Business

31 December, 00:57

A company uses the percent of sales method to determine its bad debts expense. Atthe end of the current year, the company's unadjusted trial balance reported thefollowing selected amounts:Accounts receivable$ 362,000 debit Allowance for uncollectible accounts570 credit Net sales807,000 credit All sales are made on credit. Based on past experience, the company estimates 0.3% ofcredit sales to be uncollectible. What adjusting entry should the company make at theend of the current year to record its estimated bad debts expense?

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Arabella Wilcox · Answer 1

The journal entries are shown below;

Bad debt expense A/c Dr $2,421

To Allowance for doubtful debts A/c $2,421

(Being bad debt expense is recorded)

The computation of the bad debt expense is given below

= Net sales * estimated percentage given

= $807,000 * 0.3%

= $2,421

To determine the estimated bad debt expenses we debited the bad debt expense account and credited the allowance for doubtful debts