Accounts Receivable – Uncollectible Accounts

Two methods to write off uncollectible accounts:

Direct Write-off Allowance Method

Bad Debt Expense is recorded when the Estimates the uncollectible accounts receivable at the
customer’s account is determined to be end of the accounting period
uncollectible

Dr. Bad Debt Expense $9,250 Dr. Bad Debt Expense $30,000

Cr. Accounts Receivable – B. Smith $9,250 Cr. Allowance for Doubtful Accounts $30,000

Dr. Allowance for Doubtful Accounts $2,400

Cr. Accounts Receivable – John Landscaper $2,400

The allowance method requires an estimate of uncollectible accounts.

A. Percent of Receivables Method

B. Aging of Receivables Method

Allowance account is the focus – emphasis on the Balance Sheet

The amount of the adjusting entry is based on the final value in the allowance account

Example: The allowance is calculated to be $20,000 (balance in the account is $5,000)

Dr. Bad Debt Expense $15,000

Cr. Allowance for Doubtful Accounts $15,000

C. Percent of Sales Method


 Bad Debt Expense is the focus – emphasis on the Income Statement
 The amount of the adjusting entry is based on the estimate of Bad Debt Expense for the period.

Example: Sales on credit $3,000,000 (bad debt estimated at ¾ %) = $22,500

Dr. Bad Debt Expense $22,500

Cr. Allowance for Doubtful Accounts $22,500