describe the process followed when estimating bad debt expen

describe the process followed when estimating bad debt expense under the percentage of sales method.

Solution

The following process is followed in estimating the bad debt expense under % of sales method.

Step1. Compute the credit sales net for the period.

Step2. Estimate the percentage of credit sales unrealised based on the past experience

Step3: Apply the percentage on the net credit sales to estimate the sales to be unrealisable and hence recorded as Ba debt expense. This method of computing the bad debts xpense does not take in to account the balance in hand in Allowance for uncollectible accounts on the date of adjustment of bad debt expense.

Step4. The journal entry for the bad debt expense is as follows:

Bad debts expense Account Dr. (Amount computed in Step 3)

Allowance for uncollectible account