[shana_alex23]

During 2010, one of the customers of Bings Company declared bankruptcy. This customer had been a major purchases of Bings products and owed $40,000 on account to Bing (a material portion of its receivables) at the time of bankruptcy. As a result of bankruptcy, Bings had to write-off the entire $40,000 account receivable of the customer as a loss. The president is concerned about how to report this loss on the company's 2010 income statement. The president says, "Since this company that went bankrupt was a major customer, surely this is an unusual and infrequent event, and the $40,000 should be reported as an extraordinary loss. What do you think?"

My answer: This event does not meet the requirements to constitute an extraordinary loss (unusual nature and infrequent of occurrence). I believe this would need to be written-off as an Allowance for Doubtful Account. Does this seem like its in the right path or am I missing something?
Thanks!

[morgaine300]

I would agree with you. A customer going bankrupt is not an unusual OR infrequent event. Happens all the time. It's a normal risk of business, and a bigger risk when the company happens to be a large percentage of your business.