Question

On January 1, a company's allowance for doubtful accounts had a credit balance of $21,000. During the year, it had net credit sales of $800,000 and it had $25,000 of uncollectible accounts receivable that were written off. Past experience indicates that the allowance should be 8% of the balance in receivables (percentage-of-receivables basis). If the accounts receivable balance at December 31 is $300,000, what is the bad debt expense for the year

Answer 1

Based on the percentage of the receivables that go to the allowance account and the accounts receivable balance, the bad debt expense is $24,000.

How can the bad debt expense be found?

This is found as:

= (Accounts receivable balance x Percentage of receivables ) + (Amount written off - Credit balance on allowance account)

Solving gives:

= (300,000 x 8%) + (25,000 - 21,000)

= 24,000 + 4,000

= $28,000

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