Company has net credit sales in 2006 of $200,000. accounts receivable are $40,000 and allowance for...?

Question

doubtful accounts has a $200 credit balance on 12/31/06. if company estimates bad debt losses as 2% of net credit sales, bad debt expense for 2006 is:

Answer 1

You are using credit sales as a basis for determining your bad debts expense, so regardless of how much you have in your allowance account, your bad debts expense would be 2% x $200,000 = $4,000

Dr  Bad debts expense $4,000

Cr  Allowance for doubtful accounts $4,000