Question

if you have an allowance for doubtful accounts for 100 that you asign an expense to at the beginning of the year also for 100 (Bad Debt Expense), what happens with expenses if you made a wrong calculation? supposedly you already debited Bad Debt Expense for 100, can you increase it if write offs amount to more than 100 over the year ? What is the whole process ?

Answer 1

Based on the data provided, the following entries would have been made at the begining of the year:

Bad Debts Expense ( Debit) $ 100

Allowance for Doubtful Debts ( Credit) $ 100

Bad Debt estimates generally differ from the amounts that are later assessed to be uncollectible. If these differences are "MATERIAL", companies are required to revise their bad debt estimates for the current period. If it has been observed that the Bad Debts expense made at the begining of the year is inadequate, the following adjustment entry is passed at the end of the year:

Bad Debts Expense (Debit) : $ 200

Allowance for Doubtful Debts (Credit) : $ 200

The amount of Bad Debts adjusting entry will be the difference between the required balance now assessed at the end of the year ( $ 100+$100=$200) and the existing balance in the Allowance for Doubtful Debt account ($ 100).

At the end of the year, the Allowance for Doubtful Debts will show a new balance of $ 200.