Question

Twilight Co. started operations in 2017 and has the following information at the end of June, 2021: $420,000 in its Accounts Receivable and $2,000 debit balance in its Allowance for Uncollectible Accounts. Credit sales for the quarter were $3,200,000 and cash sales of $1,440,000. Twilight Co. estimates its bad debts to be 3.5% of credit sales. What is the amount of Bad Debt Expense for the month

Answer 1

Answer:

$114,000

Explanation:

When a company makes sales on account, debit accounts receivable and credit sales. Based on assessment, some or all of the receivables may be uncollectible.  

To account for this, debit bad debit expense and credit allowance for doubtful debt. Should the debt become uncollectible (i.e go bad), debit allowance for doubtful debt and credit accounts receivable.

Given that it estimates its bad debts to be 3.5% of credit sales, estimated bad debt

= 3.5% * $3,200,000

= $112,000

If the Allowance for Uncollectible Accounts has a $2,000 debit balance and the estimated allowance balance should be $112,000, allowance for doubtful debt required

= $112000 + $2000

= $114,000

To account for this,

debit bad debit expense $114,000

credit allowance for doubtful $114,000