The complete question is:
A company uses the percent of sales method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts:
Accounts receivable $349,000 debit
Allowance for uncollectible accounts 660 debit
Net Sales 794,000 credit
All sales are made on credit. Based on past experience, the company estimates that 0.6% of net credit sales are uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?
Answer:
A debit of $4,764 to Bad Debt Expense
Explanation:
When a company uses the percentage of sales approach to determine its bad debt expense, it uses an estimated percentage of net sales made to calculate it's debt expense.
In this case there was a net sales of $794,000.
Based on experience about 0.6% of sales are usually uncollectible
Estimated debt expense= Percentage loss * Net sales
Estimated debt expense= 0.006 * 794,000
Estimated debt expense= $4,764
The adjusting entry at year end will involve a debit of $4,764 to Bad Debt Expense
