If the company uses the percent of sales method to account for its bad debt expe

Question

If the company uses the percent of sales method to account for its bad debt expense and estimates bad debt expense to be 1% of total sales what journal entry should the company make? What effect does this entry have on the accounting equation? If the company uses the percent of accounts receivable method to account for its bad debt expense and estimates bad debt expense to be 5% of accounts receivable. what journal entry should the company make? What effect does this entry have on the accounting equation?

Explanation / Answer

Sales, Account receivables figures are not properly visible in picture :

So, I assume the figure :

Sales: $ 1,90,000

Account Receivables : $ 1,50,000

Doubtful Accounts : $ 1,000

Assets = Liabilities + Equity

NA = Provision for doubtful accounts + (-) Reserve & Surplus

0 = 1900 - 1900

Assets = Liabilities + Equity

NA = Provision for doubtful accounts + (-) Reserve & Surplus

0 = 7500 -7500

S.no. General Ledger Debit Credit 1. Bad Debt Expense A/c Dr. 1900 To Provision for Doubtful Accounts 1900 ( Being bad debt expense booked - 1% of total sales) 2. Reserve & Surplus A/c Dr. 1900 To Bad Debt A/c 1900 ( Being Expenses T/f to Reserve A/c)

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