The Allowance for Bad Debts account has a credit balance of

The Allowance for Bad Debts account has a credit balance of 2.000 dollar . The companys management estimates that %2 of net credit sales will be uncollectible for the year 2015. Net credit sales for the year amounted to 250,000.What will be the amount of Bad Debts Expense reported on the income statement for 2015 ?

Solution

Bad Debts have the credit Balance = $ 2,000

Net sales for the year = $ 250,000

Uncollectable Amount = 2% of $ 250,000 = $ 5,000

Journal Entry for this is as below,

Bad Debts - Debit $ 5,000

To Allowance for Bad Debts - Credit $ 5,000

Allowance for bad debts have already a credit balance so no increase in the bad debt expenses of the year .

So Bad Debts of the year = $ 5,000

Answer =   Bad Debts Expense reported on the income statement for 2015 = $ 5,000