Belkou Company began operations on January 1, 2007. Its first year’s sales were $ 1,170,000, which were 70% on credit. During the year, $ 725,000 was collected from customers on account, and the company wrote off accounts worth $ 2,100. At the end of the year, management estimated that 0.5% of all credit sales would probably be uncollectible.
Now I already know that the bad debt expense is 4095. I’m just wondering how do you calculate the allowance for doubtful accounts.
See I thought you’d just take the 4095-2100 in writeoffs to get 1995, but apparently that is incorrect. Does that mean the allowance for doubtful accounts is just 4095? Thanks in advance.