Credit losses based on credit sales lewis company uses the allowance method for recording its expected credit losses. it estimates credit losses at 5% of credit sales which were $900,000 during the year. on december 31, the accounts receivable balance was $150,000 and the allowance for doubtful accounts had a credit balance of $20,200 before adjustment. a. prepare the adjusting entry to record the credit losses for the year

Explanation:

The adjusting entry to record the credit losses is shown below:

Bad debt expense A/c Dr $45,000

       To Allowance for doubtful debts $45,000

(Being bad debt is recorded)

The credit loss computation is shown below:

= Credit sales × estimated percentage

= $900,000 × 5%

= $45,000

For recording this transaction, we debited the expense account and credited the contra asset account.

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