Question

During the​ year, Sheldon Company had net credit sales of $ 47 comma 000. At the end of the​ year, before adjusting​ entries, the balance in Accounts Receivable was $ 11 comma 500 ​(debit) and the balance in Allowance for Bad Debts was $ 670 ​(credit). If the company uses an income statement approach to estimate bad debts at 4​%, what is the ending balance in the Allowance for Bad Debts​ account?

Answer 1

Answer:

The balance of allowance for doubtful accounts is $ 1,880

Explanation:

Computation of balance in Allowance for Bad Debts

Total credit sales                                             $ 47 comma 000

Estimated bad debts as a % of sales                     4 %

Balance of Allowance for Doubtful accounts      $ 1,880

The balance is based on a % to credit sales basis. The bad debts expense for the year considers the balance in the allowance for doubtful accounts and the accounting entry is an adjustment amount.