Question

Matthews Company uses the percentage-of-sales method to estimate the Allowance for Doubtful Accounts. Before adjustment, the Allowance for Doubtful Accounts has a debit balance of $2,500. If net credit sales are $725,000 and Matthews estimates 1% of the net credit sales to be uncollectible, what will be the amount of the journal entry for the adjusting entry at year-end

Answer 1

The amount of the adjusting journal entry at year-end for Matthews Company, which uses the percentage-of-sales method to estimate its Allowance for Doubtful Accounts is $9,750.

What is the percentage-of-sales method?

The percentage-of-sales method is one of the methods for estimating the Allowance for Doubtful Accounts.

This method uses a predetermined percentage that is applied on the Net Credit Sales to determine the amount of the Allowance for Doubtful Accounts for the period.

Data and Calculations:

Debit balance of Allowance for Doubtful Accounts = $2,500

Net Credit Sales = $725,000

Uncollectible estimate = 1% of net credit sales

= $7,250 ($725,000 x 1%)

Bad Debts Expense $9,750 Allowance for Doubtful Accounts $9,750 ($2,500 + $7,250)

Thus, the amount of the adjusting journal entry at year-end for Matthews Company, which uses the percentage-of-sales method to estimate its Allowance for Doubtful Accounts is $9,750.

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