ProcessIntermediate
How is bad debt expense calculated using the percentage of sales method according to the chapter?
Bad debt expense is calculated using the percentage of sales method by applying a historical percentage of credit sales that result in bad debts to the current period's credit sales. For example, if a company estimates that 1% of its credit sales will be uncollectible and its credit sales for the period are $1,970,000, the bad debt expense would be calculated as $1,970,000 multiplied by 1%, resulting in $19,700.
Key points
- Bad debt expense is based on a historical percentage of credit sales.
- The method is simple and involves a one-step calculation.
- For example, with credit sales of $1,970,000 and a 1% bad debt rate, the expense would be $19,700.
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Financial Accounting, 11th Edition
Patricia Libby, Robert Libby, Frank Hodge
11th Edition · McGraw Hill LLC