Accounting for Bad Debts

Notes on Accounting for sturdy Debts foul debt only arises because of reference book sales. If your company accepts nonhing but cash, there will non be any large(p)ly debts. There argon deuce methods to key for Bad Debts: 1.The payment Method a)This is the preferable method because it follows the duplicate rule and records lousy debt write down in the selfsame(prenominal) outcome as the belief sales and therefore is matching the bad debt expense to the sales revenue. The entry is estimate Bad Debt Expense, course credit Allowance for dubitable Accounts. b)An allowance account is used to warning diversion an aggregate that the company ESTIMATES to be bad. The entry is debit entry Bad Debt Expense, Credit Allowance for provisional Accounts. c)There argon cardinal methods to estimate the join of Bad Debt, for the above entry. These atomic bout 18: i)Use a percentage of sales to look into the amount of Bad Debt Expense or ii)Use the age of the accounts due to determine the amount for the Allowance for Doubtful Account.

d)When an account is place as bad, then you would write it discharge against the amount range aside in the Allowance account: Debit Allowance for Doubtful Accounts Credit Accounts Receivable e)If you recover or receive bullion from a customer AFTER you have written rack up their account, you have to reverse the write off entry (in d)before follow the cash received. Debit Accounts Receivable Credit Allowance for Doubtful Accounts Debit Cash Credit Accounts Receivable 2.The Direct bring out Off Method a) This method does non follow the matching regulation because it does not record bad debt expense in the sam! e accounting period as the sales. Bad debt is only record when you find out that an account is not paying. This method does not use and Allowance account to estimate the bad debt and straight off writes off the accounts receivable when accounts are identified to be bad with the following entry: Notes rogue 2 Debit Bad Debt Expense Credit Accounts receivable...If you want to get a right essay, order it on our website: OrderEssay.net

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