Info Provided: Total credit sales $2,200,000 Accounts receivable at December 31
ID: 2433688 • Letter: I
Question
Info Provided:Total credit sales $2,200,000 Accounts receivable at December 31 825,000 Bad debts written off 33,000
1. Assume that the Company estimates its bad debt expense to be 2%of credit sales. What amount of bad debts expense will they recordif it has an Allowance for Doubtful Accounts credit balance of4000?
2. Assume that the Company estimates its bad debts expensebased on 6% of Accounts Receivable. What amount of bad debtsexpense will the company record if it has an allowance of doubtfulaccounts credit of 3000?
I figured out how to determine if the allowance of doubtfulaccounts is debit, but I'm not sure what the formula is for theabove two questions.
Total credit sales $2,200,000 Accounts receivable at December 31 825,000 Bad debts written off 33,000
Explanation / Answer
. 1. Bad Debt expense is 2% of credit sales = 2% * 2200,000 =44000 As Bad debt a/c already has a credit Bal of 4000, addl proviion ofBad debt reqd is 44000-4000 = 40000 Bad Debts Cr. 4000 Add: Bad Debt Exp Cr 40000 Bad debt Written off Dr 33000 This will leave a credit of 11000 to Bad Debt a/c 2. Bad debt exp = 6% of A/C Rxable = 6%*825000 = 49500 As Bad Debt a/c already has a credit of 3000, addl provision reqdis 49500-3000 = 46500. Bad Debt a/c Cr 3000 Addl prov for Bad debt exp Cr. 46500 Bad debt written off. Dr 33000 This will leave a credit of 16500 in Bad Debt a/c