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XYZ Corp. uses the percentage of credit sales method in determining its bad debt expense. The following information comes from the accounting records of XYZ Corp.: Cash sales $270,000 Credit sales 730,000 Total sales 1,000,000 Credit balance in the Allowance for Doubtful Accounts 2,000 Bad debt loss rate 3% What is the estimate of bad debt expense

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Answer: $21,900

Explanation:

When a company uses the Percentage of Credit Sales method for determining its bad debt expense, the bad debt expense is simply the product of the Credit sales multiplied by the expected Bad debt loss rate.

Bad debt expense for XYZ is therefore;

= 730,000 * 3%

= $21,900

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