A company uses the percentage-of-sales method to estimate bad debts. Credit sales for the year are $800,000, and the company estimates 2% will be uncollectible. The allowance for doubtful accounts has a debit balance of $4,000 before adjustment. What is the bad debt expense for the year?

Question

TheoryPractice · Accepted Answer

$16,000. Under the percentage-of-sales (income-statement) approach, bad debt expense equals the percentage applied to credit sales regardless of the allowance balance: $800,000 × 2% = $16,000. The existing debit balance in the allowance does not affect this calculation.

A company uses the percentage-of-sales method to estimate bad debts. Credit sales for the year are $800,000, and the company estimates 2% will be uncollectible. The allowance for doubtful accounts has a debit balance of $4,000 before adjustment. What is the bad debt expense for the year?

Related questions — Assets & Liabilities

Free practice here. Timed mocks when you are ready.