Uncollectible Accounts - Chapter 7

Allowance (for doubtful accounts) Entry -- used at the end of the acctng period to estimate the bad debt expense; driven by the matching principle. We know who isn't going to pay at this point.
Write Off Entry -- Used when we know which customers are not going to pay. We need to zero out sub-ledger and credit A/R as we are selling the acct.
Recovery Entry -- Someone comes back to pay after being written off. Re-create the sub-ledger (Allow for D/A) and debit A/R. Then do normal cash entry.

DR Allow for D/A (+xA)
CR A/R (-A)

Need to take out of A/R as we are factoring the account (getting rid of it). We know by now who is not going to pay.

DR A/R
CR Allow for D/A
DR Cash
CR A/R

DR Bad Debt Expense
CR Allow for D/A

1) No effect because they cancel each other out
2) No effect because they are both B/S accts & sales show up on I/S.
3) Same as #2

1) A/R goes up since we are debiting A/R and debit is it's normal balance.
2) Net Sales go up since we crediting rev and credit is it's normal balance.
3) Net Income would go up since it is a result of rev - exp and our rev went up.

1) A negative impact because we start with a positive, and then deduct twice.
2) No effect since we only touched asset accounts and net sales are recorded on the I/S, not the B/S.
3) No effect since we only touched asset accounts and net sales are recorded on the I/S, not the B/S.

1) A negative impact since allow for D/A accts are part of net A/R.
2) No effect, we are not touching revenue at all.
3) A negative impact since NI is a results of rev - exp.

1) Aging of A/R method (B/S) -- takes >30, 30-60, 60-90 and 90+ totals to determine ending allow for D/A, then calculate bad debt exp (beg bal, deduct w/o's, add recoveries, deduct total from ending allow for D/A total).
2) % of credit sales method (I/S) -- take credit sales & previous years uncollected sales into acct. Take sales on acct x historic or industry % to calculate bad debt expense.

Net Sales/Average Receivables (beg rec + end rec/2)