In its first year of business, ABC, Inc. had Accounts Receivable of $8,000 and Credit sales of $38,000. Management estimates 2% of the total credit sales will be uncollectible. Bad Debt Expense equals:.

$760

Explanation:

Account Receivable = $8,000

Total Credit sales = $38,000

As management estimates 2% of the total credit sales will be uncollectible the debt expense will be

Debt Expense = Credit Sales x 2%

Debt Expense = $38,000 x 2%

Debt Expense = $760

The Journal Entry will be as follow

DR.   Bad debt Expense         $760

CR.   Account receivable  $760

It is assumed that the expense is directly charged to income statement there is no adjustment to provision for doubtful debt account.

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