Which one of the following calculations is correct for the percentage of credit sales method?
A) Bad debt expense = Sales x historic %
B) Bad debt expense = Credit sales x historic %
C) Bad debt expense x historic % = Allowance for doubtful accounts
D) Bad debt expense = Accounts receivable x historic %

Question

Quizplus · Accepted Answer

The percentage of credit sales method calculates the anticipated amount of bad debt expense based on the historical percentage of credit sales that have resulted in uncollectible accounts. Therefore, the correct formula is Bad debt expense = Credit sales x historic %. Option A incorrectly uses total sales instead of credit sales, Option C has the formula reversed, and Option D incorrectly uses accounts receivable instead of credit sales.

Which One of the Following Calculations Is Correct for the Percentage