## Tuesday, March 11, 2008

### Percent of Accounts Receivable Method for Estimating Bad Debts Expense

Calculating the Percent of Accounts Receivable Method for Estimating Bad Debts Expense

Calculate the estimate of the Allowance for Doubtful Accounts.

Year-end Accounts Receivable × Bad Debt %

Bad Debts Expense is computed as:

Estimated Adjusted Balance in Allowance for Doubtful Accounts
-Unadjusted Year-End Balance in Allowance for Doubtful Accounts
=Estimated Bad Debts Expense

Accounts Receivable - January 1, 2005 \$130,000

Credit sales during 2005 \$720,000

Collections from credit customers during 2005 \$690,000

Customer accounts considered uncollectible during 2005 \$5,000

Allowance for Doubtful Accounts on January 1, 2005 \$4,900

If a small business estimates 7.5% of its accounts receivables to be uncollectible, what amount should be recorded as bad debt expense on December 31, 2005 with a journal entry to the accounting records?

\$11,725

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