JournaldrillBad debts: percent of sales
A journal entry exercise from Journaldrill. Solve it with an account picker and debit and credit fields in your browser, and it is checked the moment you submit.
The task
Harbor Lane Supply estimates that 1.5% of its $240,000 of credit sales for the year will prove uncollectible. Before the year-end adjustment, Allowance for Doubtful Accounts has a credit balance of $800. Record bad debt expense using the percent-of-sales method.
What this exercise teaches
Bad debt expense is $240,000 x 1.5% = $3,600. The percent-of-sales method ignores the existing $800 allowance balance, so the full $3,600 is recorded.
A hint if you get stuck
Under the percent-of-sales method the expense comes straight from sales, and the contra-asset account increases.
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