Allowance Method For Bad Debt

A business uses the allowance method for accounting for doubtful accounts, and has decided that a debt from a customer of 2,000 is not recoverable and needs to be recorded as a bad debt.

As the business uses the allowance method for bad debts, the journal entry is to the allowance for doubtful debts account as follows:

Journal Entry for the Allowance Method For Bad Debt

The accounting records will show the following bookkeeping entries when using the allowance method for bad debt.

Allowance Method For Bad Debt Journal
Account Debit Credit
Allowance for doubtful accounts 2,000
Accounts receivable 2,000
Total 2,000 2,000

Allowance Method For Bad Debt Bookkeeping Entries Explained

Debit
The debit entry records the bad debt write off to the allowance for doubtful accounts.

Credit
The amount owed by the customer of 2,000 has been removed from accounts receivable by the credit entry, as it is no longer recoverable.

The Accounting Equation

The Accounting Equation, Assets = Liabilities + Owners Equity means that the total assets of the business are always equal to the total liabilities plus the owners equity of the business. This is true at any time and applies to each transaction. For this transaction the Accounting equation is shown in the following table.

Allowance Method For Bad Debt Accounting Equation
Assets = Liabilities + Owners Equity
Accounts receivable + Allowance for doubtful accounts =  None +  None
-2,000 + 2,000 = 0 + 0

In this case an asset (accounts receivable) has been reduced by the credit entry, and a contra asset account (allowance for doubtful accounts), is also reduced by the corresponding debit entry.

If should be noted that the effect of these two entries to write off bad debt is to reduce an asset account and a contra asset account by equal amounts. As a result of this, the value of the net accounts receivable in the balance sheet does not change.

Popular mdct.ru Examples

Another mdct.ru example for you to discover.

Allowance Method For Bad Debt November 6th, 2016Team

You May Also Like


Related pages


calculate pmt formulageneral ledger formdouble entry bookkeeping practice questionsgross profit margin calculator downloadcalculating quick ratio from balance sheetaccounts receivable vs notes receivablejournal entries for bad debtsjoint venture accounts exampleswithholding tax entryaccounting ledger formatvariable overheadshow do i calculate stockholders equityprofit margin percentage calculator150 declining balance depreciation calculatorhow to maintain petty cash bookmeaning of journal voucher in accountingexamples of depreciating assetsentries for stock dividendsactivity based depreciation calculatorcash voucher formatdepreciation slm methodwhere to find marketable securities on balance sheetinstallment note definitionhow to write off inventory in quickbooksacid test ratio calculatoraverage account payable formulapresent value of an annuity formulaperpetuity financial calculatortrade debtors ratiocontra receivablecalculating markup vs margindeclaring a dividendbad debts accounting entrydifference between imprest and petty cashcost of good sold statement formattemplate for receipt of moneyaccounting for royalty expensedividend payable journal entrypv and fv formulaunderappliedinvoiced meaningformula of stock turnover ratiosimple bookkeeping formsdouble declining balance ratedebit credit journaltrial balance adjustments examplehow to calculate dividends declaredcalculating cvpinventory turnover equationformula for fixed cost per unitsales allowance journal entrynotes payable examplesexamples of profitability ratiosnpv of an annuitypayback analysis calculatorcommon size balance sheet ratiosunderapplied manufacturing overheaddefinition of sundry creditorscapital lease agreement templateformula to calculate fixed costpurchases returns and allowancespresent value of annuity due tablefv annuity dueinventory turnover examplesface value of a bond calculatornature of bills receivable accountdouble entry accounting principlescalculate annuity formulawithholding tax accounting entriesaccounting for consignment inventoryexample of statement of stockholders equitybalance sheet excel formulastie ratio calculatorvoucher sample formatstandard general ledger chart of accountshow to compute gross profit percentageinstallment loan examplecoupon bond price calculatorhow to calculate annuity payments