An allowance for doubtful accounts is considered a “contra asset,” because it reduces the amount of an asset, in this case the accounts receivable. The allowance, sometimes called a bad debt reserve, represents management’s estimate of the amount of accounts receivable that will not be paid by customers. If actual experience differs, then management adjusts its estimation methodology to bring the reserve more into alignment with actual results. Show
In accrual-basis accounting, recording the allowance for doubtful accounts at the same time as the sale improves the accuracy of financial reports. The projected bad debt expense is properly matched against the related sale, thereby providing a more accurate view of revenue and expenses for a specific period of time. In addition, this accounting process prevents the large swings in operating results when uncollectible accounts are written off directly as bad debt expenses. Units should consider using an allowance for doubtful accounts when they are regularly providing goods or services “on credit” and have experience with the collectability of those accounts. The following entry should be done in accordance with your revenue and reporting cycles (recording the expense in the same reporting period as the revenue is earned), but at a minimum, annually. DR Bad Debt Expense CR Allowance for Doubtful Accounts
When it is determined that an account cannot be collected, the receivable balance should be written off. When the unit maintains an allowance for doubtful accounts, the write-off reduces the outstanding accounts receivable, and is charged against the allowance – do not record bad debt expense again! DR Allowance for Doubtful Accounts CR Accounts Receivable For detailed expectations and guidelines related to write offs, see Writing Off Uncollectable Receivables. Uh-Oh! That’s all you get for now. We would love to personalise your learning journey. Sign Up to explore more. Sign Up or Login Skip for now Uh-Oh! That’s all you get for now. We would love to personalise your learning journey. Sign Up to explore more. Sign Up or Login Skip for now Solution (A) The accountant debits bad debt expense(B) The accountant credits bad debt expense(C) The accountant debits allowance for bad debt(D) The accountant credits allowance for bad debtAnswer (A): The accountant debits bad debt expenseExplanation: The accountant debits the bad debts expenses as an expense for the organisation as there is a slim chance that it would be paid off. (adsbygoogle = window.adsbygoogle || []).push({});Solve Textbooks Question Papers When the allowance method is used to account for uncollectible accounts doubtful accounts expense is debited when?Answer and Explanation: When the allowance method is used to account for uncollectible accounts, Bad Debt Expense is debited when c. management estimates the amount of uncollectibles. Under the allowance method, the company will make estimates of the amount of bad debts incurred during the year.
Is allowance for uncollectible accounts debited?As a result the bad debts expense is more closely matched to the sale. When a specific account is identified as uncollectible, the Allowance for Doubtful Accounts should be debited and Accounts Receivable should be credited.
What is bad debt expense under the allowance method?An allowance for doubtful accounts is considered a “contra asset,” because it reduces the amount of an asset, in this case the accounts receivable. The allowance, sometimes called a bad debt reserve, represents management's estimate of the amount of accounts receivable that will not be paid by customers.
Is allowance for bad debts subtracted?The allowance for doubtful accounts is a contra asset account and is subtracted from Accounts Receivable to determine the Net Realizable Value of the Accounts Receivable account on the balance sheet.
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Under the allowance method of accounting for uncollectible accounts, bad debt expense is debited
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