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    Janelle101's Avatar
    Janelle101 Posts: 60, Reputation: 1
    Junior Member
    		  
    #1

    Jun 30, 2009, 06:18 AM
    Bad Debts
    My question: suppose the actual bad debt for a buusiness for the three previous years is 5%. If the net credit sales is 2,000,000.00 then what is the estimate bad debt expense for the next year? I tried but I don't think this is right.

    Bad Debt Expense... 100,000
    Allownace for doubtful accounts.. 100,000
    To record bad debt expenses.
    codyman144's Avatar
    codyman144 Posts: 544, Reputation: 31
    Senior Member
    		  
    #2

    Jun 30, 2009, 06:25 AM

    Looks right to me...

    Only question I have is, is there anything in the allowance account now? Also the question doesn't seem to ask for a J/E just the amount.
    Janelle101's Avatar
    Janelle101 Posts: 60, Reputation: 1
    Junior Member
    		  
    #3

    Jun 30, 2009, 06:40 AM

    This is exactly the way the question were asked.
    rehmanvohra's Avatar
    rehmanvohra Posts: 739, Reputation: 27
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    #4

    Jun 30, 2009, 06:49 AM
    Recording estimated uncollectible or doubtful debts can be on two methods:
    1. Income statement approach - Under this you just record the estimated bad debts based on sales. Your entry is correct. Balance in the allowance account will change due to this entry and any actual bade debts in the next year will be recorded in the allowance account with a credit to accounts receivable.
    2. Balance sheet approach - This methods reports the estimated doubtful debts based on the year end accounts receivable. If there is any balance in the allowance account, the charge to the income statement will be the difference between the required estimate and the balance in the allowance account.
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