Question

During its first year of? operations, credit sales were $50,000 and collections of credit sales were...

During its first year of? operations, credit sales were $50,000 and collections of credit sales were $34,000. One? account, $500?, was written off. Management uses the percent?of?sales method to account for bad debts expense and estimates 33% of credit sales to be uncollectible. The ending balance of allowance for bad debts is

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Answer #1

Credit Sales                                     = $50000

(-)Collection from credit sales     = $34000

Credit sales Uncollectable            = $16000

Provision for bad debts = Credit sales Uncollectable * Percentage of provision

Provision for bad debts = 16000*33% = 5280

Ending Balance of allowance for bad debt = Provision for bad debt – Bad debt written off

= 5280 – 500 = $4780

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