Ervin Company uses the allowance method to account for uncollectible accounts receivable. Bad debt expense is established as a percentage of credit sales. For 2021, net credit sales totaled $4,500,000, and the estimated bad debt percentage is 1.5%. No previously written-off accounts receivable were reinstated during 2021. The allowance for uncollectible accounts had a credit balance of $42,000 at the beginning of 2021 and $40,000, after adjusting entries, at the end of 2021.Required:1. What is bad debt expense for 2021 as a percent of net credit sales?2. Assume Ervin makes no other adjustment of bad debt expense during 2021. Determine the amount of accounts receivable written off during 2021.3. If the company uses the direct write-off method, what would bad debt expense be for 2021?
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Ervin Company uses the allowance method to account for uncollectible accounts receivable.
Required:
1. What is bad debt expense for 2021 as a percent of net credit sales?
2. Assume Ervin makes no other adjustment of bad debt expense during 2021. Determine the amount of accounts receivable written off during 2021.
3. If the company uses the direct write-off method, what would bad debt expense be for 2021?
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