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13 June, 20:53

Knowledge Check 01 Carlton Company uses the percent of sales method to estimate its bad debt expense. Based on past experience, the company estimates 2 percent of credit sales to be uncollectible. At the end of the current year, the company's unadjusted trial balance shows Accounts Receivable of $245,000 and Credit Sales of $900,000. Prepare the necessary December 31 adjusting entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

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  1. 13 June, 21:43
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    The adjusting entry is shown below:

    Bad debt expense A/c Dr $18,000

    To Allowance for doubtful accounts $18,000

    (Being bad expense is adjusted)

    The bad debt expense is computed by

    = Credit sales * uncollectible percentage

    = $900,000 * 2%

    = $18,000

    The same amount will be credited to Allowance for doubtful accounts as it records only estimated value.
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