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: $$\begin{array} { | l | r | }
\hline \text { Accounts receivable } & \$ 375,000 \text { debit } \
\hline \text { Allowance for uncollecible accounts } & 500 \text { debit } \
\hline \text { Net Sales } & 800,000 \text { credit } \
\hline
\end{array}$$ 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?

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: $$\begin{array} { | l | r | } 
\hline \text { Accounts receivable } & \$ 375,000 \text { debit } \
\hline \text { Allowance for uncollecible accounts } & 500 \text { debit } \
\hline \text { Net Sales } & 800,000 \text { credit } \
\hline
\end{array}$$ 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?

Quizplus · Accepted Answer

The bad debts expense is calculated as 0.6% of net sales: $800,000 * 0.006 = $4,800.

A Company Uses the Percent of Sales Method to Determine