Plasma Inc.,has net credit sales of $500,000 during the year.Based on historical information,Plasma estimates that 2% of net credit sales result in bad debts.At the beginning of the year,Plasma has a credit balance in its Allowance for Doubtful Accounts of $4,000.What amount of bad debt expense should Plasma recognize for the year,assuming no specific customer accounts were written off?

Question

Quizplus · Accepted Answer

When the % of credit sales method is used,the amount of the entry to record Bad Debt Expense is based on the historical % of bad debt losses and is not adjusted for any balance in the allowance for doubtful accounts.
$500,000 * .02 = 10,000.