Hahn Company uses the percentage of sales method for recording bad debts expense

Question

Hahn Company uses the percentage of sales method for recording bad debts expense. For the year, cash sales are $500,000 and credit sales are $2,000,000. Management estimates that 1% is the sales percentage to use. What adjusting entry will Hahn Company make to record the bad debts expense?

Question 1 options:

1) Bad Debts Expense 20,000
Allowance for Doubtful Accounts 20,000 2) Bad Debts Expense 25,000
Allowance for Doubtful Accounts 25,000 3) Bad Debts Expense 25,000
Accounts Receivable 25,000 4) Bad Debts Expense 20,000
Accounts Receivable 20,000

Explanation / Answer

1 is the answer. Percentage of sales method- Credit sales multiplied by percentage of doubtful collectibility.

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