# Bad Debt Income Statement Approach Problem and Solution

When the bad debts are estimated over the amount of sales, then this method is called bad debt income statement approach. In this post, we will share problems and solutions so that you can practice more for your upcoming exams.

Problem

Aluma is an online store that sells vegetable gardening supplies to users all over North America. Following are the balances obtained from its accounting records:

 Accounts receivable – opening balance 170,000 Allowance for bad debts (debit balance) – opening balance 1,600 Sales revenue 750,000 Cash collected from customers 300,000

You are required:

To record adjusting entry in case allowance for doubtful debt is estimated @ 6 % of sales revenue.

Prepare a partial balance sheet from available information.

Solution

Bad debt expense = net credit sales x rate of bad debt on sales = 750,000 x 6 % = 45,000

Allowance for doubtful debt – adjusting entry

 Particulars Debit Credit Bad debts expense 45,000 Allowance for bad debts 45,000

Accounts Receivable

 Opening balance 170,000 Cash 300,000 Sales 750,000 Closing Balance 620,000 920,000 920,000