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-occurs when an entity doesn't fulfill their obligation to pay your accounts receivable
-list journal entry because you don't believe you will be paid
All about how companies estimate their bad debt expense
1st method: Income Statement Method (
* because we're using percentage of sale we use income method
what is the % of credit sales
credit sales= sales - cash sales
the precentage is the bad debt expense
journal entry is always
dr bad debt exp
cr allowance for doubtful debt
allowance for doubtful debt is contra asset
sits with assets but go against assests
allowance for doubtfull accounts is an estimate that we don't think we will collect
a/r - allowance= a/r,net
2nd method: Balance Sheet Method
rather than taking percentage of sales you take percentage of receivables
figure out what % of a/r are
,this will be ending balance of allowance
same journal entry form as
a/r- allowance= a/r net
there is an amount the you are owed by people but because there are many people and you know someone won't pay you need to create an allowance, and use allowance to get your net a/r and state that as your net a/r on your financial statements
How to Write Off A/R
-means to get rid of a/r
-to get rid of any asset you credit that asset
-Dr Allowance for doubtful accounts
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