Question

Help Save & Exit 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 Allowance for uncollectible accounts Net Sales $349,000 debit 660 debit 794,000 credit All sales are made on credit. Based on past experience, the company estimates 0.6% of net credit sales to be uncollectible What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

Answer 1

Answer)

Calculation of estimated amount of bad debts

Estimated amount of bade debts = Net Credit Sales X estimated percentage of uncollectible accounts

                                                              = $ 794,000 X 0.6%

                                                               = $ 4,764.

The following adjustment journal entry will be made for record above bad debts.

Journal

Particulars	Debit	Credit
Bad Debts expense	$              4,764
Allowance for uncollectible accounts		$              4,764
(To record bad debts expense for the year)

Note: In the given question, the company made a net credit sales of $ 794,000. Based on past experience, it is estimated that 0.6% of the net credit sales will be uncollectible and thus accordingly such expense has been recognized as bad debts and an allowance for uncollectible accounts is created.