Question

Using the income statement approach, in the adjustment entry, what is the debit to the bad debt expense account given the following amounts?

Bad debt at a percentage of sales	2%
Bad debt as a percentage of A/R	5%
Sales	800,000
A/R	125,000
Balance of bad debt expense before adjustment (debit balance)	9,840

Answer 1

Solution: 1
	CALCULATION OF ESTIMATED UNCOLLECTABLE ON THE BASIS OF % OF SALES
	Net Sales	$                800,000
	Estimated uncollectable	2%
	Estimated amount of uncollectable	$                  16,000
	($ 800,000 X 2%)
	Bad debts expenses debited in journal entry is with $ 16,000
	Answer = Debited to Bad Debt Expenses = $ 16,000
Solution: 2
	CALCULATION OF ESTIMATED UNCOLLECTABLE ON THE BASIS OF % OF A/R
	Account Receivable	$                125,000
	Estimated uncollectable	5%
	Estimated amount of uncollectable	$                     6,250
	($ 125,000 X 5%)
	Answer = Debited to Bad Debt Expenses = $ 6,250