The Allowance for doubtful debts currently has a credit balance of $200. The company's management estimates that 2.5% of net credit sales will be uncollectable. Net credit sales are $115 000. What will be the amount of Bad debts expense reported on the income statement?
A)$2 875
B)$3 075
C)$2 675
D)$3 275

Question

Quizplus · Accepted Answer

The bad debts expense is calculated as 2.5% of net credit sales: 0.025 * $115,000 = $2,875. The existing credit balance in the allowance account does not affect the calculation of the bad debts expense for the period.

The Allowance for Doubtful Debts Currently Has a Credit Balance