Hahn Company uses the percentage of sales method for recording bad debts expense. For the year. cash sales are $ \$ 300,000 $ and credit sales are $ \$ 1,200,000 $. Management estimates that $ 1 \% $ is the sales percentage to use. What adjusting entry will Hahn Company make to record the bad debts expense?

Question

Quizplus · Accepted Answer

The bad debt expense is calculated by multiplying the credit sales by the percentage estimated. Therefore, the bad debt expense for the year is:

Bad debt expense = 1% x $1,200,000 = $12,000

Since the company uses the percentage of sales method, the adjusting entry to record the bad debt expense is:

Debit Bad Debt Expense $12,000 
Credit Allowance for Doubtful Accounts $12,000

Option A is incorrect because it debits accounts receivable rather than bad debt expense. 
Option C is incorrect because it debits allowance for doubtful accounts instead of bad debt expense. 
Option D is incorrect because it credits accounts receivable instead of allowance for doubtful accounts.

Hahn Company Uses the Percentage of Sales Method for Recording $300,000 \$ 300,000 $300,000

Hahn Company Uses the Percentage of Sales Method for Recording $\$ 300,000$