During the year, Sheldon Company had net credit sales of $ 47 comma 000. At the end of the year, before adjusting entries, the balance in Accounts Receivable was $ 11 comma 500 (debit) and the balance in Allowance for Bad Debts was $ 670 (credit). If the company uses an income statement approach to estimate bad debts at 4%, what is the ending balance in the Allowance for Bad Debts account?

The balance of allowance for doubtful accounts is $ 1,880

Explanation:

Computation of balance in Allowance for Bad Debts

Total credit sales                                             $ 47 comma 000

Estimated bad debts as a % of sales                     4 %

Balance of Allowance for Doubtful accounts      $ 1,880

The balance is based on a % to credit sales basis. The bad debts expense for the year considers the balance in the allowance for doubtful accounts and the accounting entry is an adjustment amount.

a

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