Question

when do you record the expense for bad debts using-

(A) the direct wrtie off method

(B) the allowance method

Explain in detail.

Answer 1

• Answer (A)

--When using Direct Write Off Method, Bad Debt expense is recorded when an ACCOUNTS RECEIVABLE actually becomes uncollectible.

--No provision is made under this method based on any assumption or estimate.

--Whenever an account receivables fails to pay his/her dues, the amount is recorded as Bad Debt Expense.

--Hence, Bad Debt Expense is recorded when an account finally becomes uncollectible.

--Journal entry under this method to record Bad Debt expense will be:

General Journal	Debit	Credit
Bad Debt Expenses	XXX
Accounts receivables		XXX
(Uncollectible account receivables written off)

• Answer (B)

--When the Allowance Method is used, each year a certain part of account receivable is assumed or estimated to be uncollectible.

--The company or firm provides for such estimated uncollectible amount during or at the end of accounting period.

--In this method, Bad Debt Expense is recorded each year through an adjusting entry where Bad Debt expense is debited and Allowance for Doubtful account is credited.

--When an account actually becomes uncollectible, Bad debt expense is not recorded. Rather, Allowance account is debited (in place of Bad Debt Expense) and Accounts receivable account is credited.

--Hence, Bad Debt expense is recorded at the end of accounting period when adjustments are made.

General Journal	Debit	Credit
Bad Debt Expenses	XXX
Allowance for Doubtful account		XXX
(Uncollectible account receivables estimated)

General Journal	Debit	Credit
Allowance for Doubtful account	XXX
Account receivables		XXX
(Uncollectible account receivables finally written off)