Question

Historical Art is a new business. During its first year of operations, credit sales were $50,000 and collections from credit sales were $34,000. One account for $500 was written off. Management uses the percent-of-sales method to account for bad debts expense and estimates 3% of credit sales to be uncollectible. What is the balance of accounts receivable at the end of the first year?

Answer 1

Answer: $1000

Explanation:

First, we calculate the amount if bad debt expense which will be:

= 3% × $50000

= $1500

Therefore, the balance of accounts receivable at the end of the first year will be:

= Amount of bad debts expense - Account written off

= $1500 - $500

= $1000