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21 December, 13:02

Valli Company uses the percentage of sales method for recording bad debts expense. For the year, cash sales are $700000 and credit sales are $2500000. Management estimates that 1% is the sales percentage to use. What adjusting entry will Valli Company make to record the bad debts expense?

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  1. 21 December, 14:52
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    Adjusting entry Valli Company will make to record the bad debts expense:

    Debit Bad Debts Expense $25,000

    Credit Allowance for Doubtful Account $25,000

    Explanation:

    Valli Company uses the percentage of sales method for recording bad debts expense. Bad debts expense is calculated by using the following formula:

    Bad Debts Expense = % Estimated Bad debts * Credit Sales

    In Valli, Credit sales are $2,500,000 and % estimated is 1%.

    Bad Debts Expense = 1% x $2,500,000 = $25,000

    The adjusting entry to record the bad debts expense will be:

    Debit Bad Debts Expense $25,000

    Credit Allowance for Doubtful Account $25,000
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