Assume Simple Co. had credit sales of $253,000 and cost of goods sold of $153,000 for the period. Simple uses the percentage of credit sales method and estimates that 2 percent of credit sales would result in uncollectible accounts. Before the end-of-period adjustment is made, the Allowance for Doubtful Accounts has a credit balance of $280. What amount of Bad Debt Expense would the company record as an end-of-period adjustment?

Question

Nikolai Valencia

Business

5 April, 14:44

Assume Simple Co. had credit sales of $253,000 and cost of goods sold of $153,000 for the period. Simple uses the percentage of credit sales method and estimates that 2 percent of credit sales would result in uncollectible accounts. Before the end-of-period adjustment is made, the Allowance for Doubtful Accounts has a credit balance of $280. What amount of Bad Debt Expense would the company record as an end-of-period adjustment?

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Edwin Tyler · Answer 1

Debit Bad debt expense $4,780

Credit Allowance for doubtful accounts $4,780

Explanation:

The percentage of credit sales method is a that portion of credit sales that management has deemed as uncollectible based on historical information.

2% of the credit sales ($253,000) is $5,060. Meanwhile, Simple has a credit balance of $280 in its Allowance account, therefore bad debt expense would be $4,780 ($5,060 - $280), as recorded in the journals above.

The cost of goods sold of $153,000 is irrelevant.