A company uses the percent of sales method to determine its bad debts expense. A

Question

A company uses the percent of sales method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts: Accounts receivable $375,000 debit Allowance for uncollectible accounts 500 debit Net Sales 800,000 credit All sales are made on credit. Based on past experience, the company estimates that 0.6% of credit sales are uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?

Explanation / Answer

0.6% of Credit sales are uncollectible

THerefore, Bad debts expense = 800000 * 0.6% = $4800

Amount that should be debited to Bad Debts Expense when the year-end adjusting entry is prepared = $4800

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