Question
Company ABC had credit sales of $400,000 during the month of July. At the end of July, an examination into their A/R showed that the
Company ABC had credit sales of $400,000 during the month of July. At the end of July, an examination into their A/R showed that the total balance was $350,000 broken down as follows:
Current $200,000 1-30 Days Past Due 80,000 31-60 Days Past Due. 40,000 61-90 Days Past Due 20,000 Greater Than 90 Days 10,000
The expectations, based on analysis of historical A/R is that 99% of the current A/R is collectible, 90% of the 1-30 days, 80% of the 31-60 days, 60% of the 61-90 days and 20% of the greater than 90 days.
If ABC uses the percentage of sales methodology of providing for bad debts, the estimate is used is 10% of credit sales are uncollectible. If ABC had to write off a $4,000 customer account due to uncollectibility, what would be the impact on bad debt expense?
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