The Percentage of Sales Method helps us calculate our Bad Debt Expense.

Concept #1: Net Accounts Receivable: Percentage of Sales Method

Practice: A company had credit sales totaling $2,000,000 this year. The company has a policy estimating 1.5% of credit sales to be uncollectible. The Allowance for Doubtful Accounts has a current debit balance of $2,000. What is the journal entry to record this year’s bad debt expense? What is the ending balance in the Allowance for Doubtful Accounts?

Additional Problems
The M Company earned $95,000 of revenue on account during the year. There was no beginning balance in the accounts receivable and allowance accounts. During the year, M collected $68,000 of cash from customers on account. The company estimates that it will be unable to collect 3% of its sales on account. The amount of uncollectible accounts expense recognized on the income statement was a. $2,040. b. $660. c. $2,850. d. $27,000.
You have the following information for Wendy’s Wedding Dresses: Accounts receivable $15,000 Allowance for Doubtful Accounts  $300 Sales  $50,000, of which $6,000 is cash sales Sales Discounts $1,000 (all credit sales) Sales returns $3,000 (all credit sales) Purchase discounts $2,500 If the company accrues for bad debts at 3% of net credit sales at 12/31, the adjusting entry should be:
On January 1, 2005, ABC Company had accounts receivable of $98,000 and an allowance for doubtful accounts with a credit balance of $17,000. During 2005, ABC Company reported sales (all on account) of $850,000; collected $625,000 cash from its credit customers; and wrote-off $12,000 of accounts receivable as uncollectible $12,000. ABC Company uses the net credit sales method to estimate bad debt expense and estimated bad debt expense for 2005 as 4% of net credit sales. Calculate the net realizable value of ABC Company's accounts receivable at  December 31, 2005.
You have the following information for Wendy’s Wedding Dresses: Accounts receivable $15,000 Allowance for Doubtful Accounts $300 Sales $50,000, of which $6,000 is cash sales Sales Discounts $1,000 (all credit sales) Sales returns $3,000 (all credit sales) Purchase discounts $2,500 If the company accrues for bad debts at 3% of net credit sales at 12/31, the adjusting entry should be: a. Debit: Bad Debt expense $1,200 and Credit: Allowance for bad debts $1,200 b. Debit: Bad Debt expense $900 and Credit: Allowance for bad debts $900 c. Debit: Bad Debt expense $1,380 and Credit: Allowance for bad debt $1,380 d. Debit: Bad debt expense $750 and Credit: Allowance for bad debt $750