Historical Art is a new business. During its first year of operations, credit sales were $50,000 and collections on credit sales were $34,000. One account of $500 was written off. Management uses the percent-of-sales method to account for bad debts expense and estimates 3% of credit sales to be uncollectible. The ending balance of Allowance for Bad Debts account is ________.

Question

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Under the percent-of-sales method, bad debts expense is calculated as a percentage of credit sales. Here, it's 3% of $50,000, which equals $1,500. The write-off of $500 does not affect the calculation of bad debts expense under this method. The ending balance in the Allowance for Bad Debts account is the bad debts expense for the period, which is $1,500, since it's the first year of operations and there would be no beginning balance in the allowance account.

Historical Art Is a New Business