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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Business

Valerie

17 October, 09:57

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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Marvin · 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