Bad Debt Expense: Percentage of Credit Sales Method Gilmore Electronics had the following data for a recent year: Cash sales $135,000 Credit sales 512,000 Accounts receivable determined to be uncollectible 9,650 The firm's estimated rate for bad debts is 2.2% of credit sales. Required: 3. If Gilmore had written off $3,000 of receivables as uncollectible during the year, how much would bad debt expense reported on the income statement have changed? Enter decrease, if any, as negative amount. If an amount is zero, enter "0" 4. Conceptual Connection: If Gilmore's estimate of bad debts is correct (2.2% of credit sales) and the gross margin is 20%, by how much did Gilmore's income from operations increase assuming $150,000 of the sales would have been lost if credit sales were not offered?
Bad Debt Expense: Percentage of Credit Sales Method
Gilmore Electronics had the following data for a recent year:
| Cash sales | $135,000 |
| Credit sales | 512,000 |
| 9,650 |
The firm's estimated rate for
Required:
3. If Gilmore had written off $3,000 of receivables as uncollectible during the year, how much would bad debt expense reported on the income statement have changed? Enter decrease, if any, as negative amount. If an amount is zero, enter "0"
4. Conceptual Connection: If Gilmore's estimate of bad debts is correct (2.2% of credit sales) and the gross margin is 20%, by how much did Gilmore's income from operations increase assuming $150,000 of the sales would have been lost if credit sales were not offered?
Bad Debt Expense:
A bad debt expense is a loss incurred by the business as a result of the customers' failure to make payment on the credit sales extended to them. In the period in which the credit sales were made, the expense is written off to the income statement. Either the allowance technique or the direct-write-off method can be used to calculate bad debt expenditure.
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