Question

Assume that you have a company. And the management estimates that 1% of sales will be uncollectible.

Give any amount of sales and prepare the journal entry using the percent of sales method.

Answer 1

According to percent of sales method, bad debt expense will be calculated as under:

Bad Debt Expense = Net sales x Percentage estimated as uncollectible

Example- Let us assume that total net sales of ABC Company for the year is $100,000. ABC Company estimates uncollectible accounts at 1% of total net sales. ABC Company would make the following adjusting entry at year end:

Bad debt expense = 100,000 x 1%

= $1,000

Dec.	31	Bad Debt Expense	Debit 1,000	Credit
		Allowance for Doubtful Accounts		1,000
		To record estimated uncollectible accounts
		($100,000 X 1%).

Kindly comment if you need further assistance. Thanks