In this example

In this example - end of the accounting period debits bad...

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In this example, estimated bad debts are $5,000. If the account has an existing credit balance of  $400, the adjusting entry includes a $4,600 debit to bad debts expense and a $4,600 credit to  allowance for bad debts. Percentage of credit sales method . Some companies estimate bad debts as a percentage of  credit sales. If a company has $500,000 in credit sales during an accounting period and company  records indicate that, on average, 1% of credit sales become uncollectible, the adjusting entry at the 
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Unformatted text preview: end of the accounting period debits bad debts expense for $5,000 and credits allowance for bad debts for $5,000. Companies that use the percentage of credit sales method base the adjusting entry solely on total credit sales and ignore any existing balance in the allowance for bad debts account. If estimates fail to match actual bad debts, the percentage rate used to estimate bad debts is adjusted on future estimates....
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This note was uploaded on 11/14/2011 for the course ACCT 1310 taught by Professor Staff during the Fall '10 term at Texas State.

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