A company using the percentage of sales method for estimating bad debts has sales of $350,000 and estimates that 1.0% of its sales are uncollectible.The unadjusted balance in Allowance for Doubtful Accounts is a $500 credit.The estimated amount of bad debts expense is $3,500.

Question

Quizplus · Accepted Answer

The estimated amount of bad debts expense is calculated by multiplying the sales by the percentage of uncollectible sales, which is $350,000 x 1.0% = $3,500. The unadjusted balance in the Allowance for Doubtful Accounts does not affect the calculation of the estimated bad debts expense using the percentage of sales method.

A Company Using the Percentage of Sales Method for Estimating