PRC-1 · Chapter 5 · Question 93 of 100
If an entity routinely experiences a 2% bad debt rate on its credit sales of Rs. 1,000,000, and decides to base its allowance strictly on sales rather than receivables balance, what is the estimated bad debt expense for the year?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Rs. 20,000
Explanation
If the allowance/expense is estimated as a percentage of sales (the income statement approach), the expense is 2% of Rs. 1,000,000 = Rs. 20,000.
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