Question

In: Accounting

How do you calculate bad debt expense and what do you do with it in relation...

How do you calculate bad debt expense and what do you do with it in relation to an account recieveable account. What numbers go in allowance for doubtful accounts

Solutions

Expert Solution

Basically there are methods to calculat the bad-debts expense for example
1 Percentage of credit sales
2 Percentage of accounts receivable
3 bad-debts calculated based on aging schedule of accounts receivable
However, whichever method is choosen the accounting treatment remains the same, once
you determines the bad-debts expense
The following Journal entries are passed in relation to bad-debts and accounts receivable
General Journal Debit Credit
Bad-debts expense XX
Allowance for Doubtful accounts XX
To record the bad -debts expense for the year
Allowance for Doubtful accounts XX
Accounts receivable XX
To record the written off as uncollectible
Cash XX
Accounts receivable XX
Accounts receivable XX
Allowance for Doubtful accounts XX
To record the collection of accounts previous written off

And finally the accounts receivable is presented in belowmentioned way.

Gross amount of Accounts receivable XX
Less : Allowance for doubt debts XX
Carrying amount of accounts receivable Net XX

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