Carton Recyclers recorded sales of $180 000 during the year (net of GST). Of these, 60% were on credit. Bad debts have averaged 1% of credit sales. The entry to estimate bad debt expense for the year is which of the following?

Question

Quizplus · Accepted Answer

The bad debt expense is estimated to be 1% of credit sales, which is 1% x 60% x $180,000 = $1,080.
The entry to estimate bad debt expense is to debit Bad debts expense and credit Allowance for doubtful debts, as this creates a contra-asset account to reduce the Accounts receivable balance. Therefore, the correct answer is choice letter A.

Carton Recyclers Recorded Sales of $180 000 During the Year