If bad debt is estimated as 1% of credit sales of $1,000,000, what is the amount of the adjusting entry for bad debt expense?

To determine the amount of the adjusting entry for bad debt expense when it is estimated as a percentage of credit sales, you multiply the total amount of credit sales by the estimated percentage of bad debts.

In this case, credit sales are $1,000,000, and the bad debt estimation is 1%. This means you calculate the bad debt expense as follows:

1% of $1,000,000 equals $10,000.

This amount represents the estimated uncollectible accounts that the company expects to not recover from its credit sales. Therefore, the adjusting entry for bad debt expense should reflect this estimation, resulting in an adjustment of $10,000.

Understanding this calculation is crucial because it affects the financial statements by ensuring that potential losses from uncollectible accounts are accurately reflected in the financial records, adhering to the principle of matching expenses to revenues in the same period.