14- 1 Accounting For Bad Debts Chapter 14. 14- 2 Learning Objective 1 Describing how the Bad Debts...
-
Upload
lizeth-brockbank -
Category
Documents
-
view
216 -
download
3
Transcript of 14- 1 Accounting For Bad Debts Chapter 14. 14- 2 Learning Objective 1 Describing how the Bad Debts...
![Page 1: 14- 1 Accounting For Bad Debts Chapter 14. 14- 2 Learning Objective 1 Describing how the Bad Debts Expense account and the Allowance for Doubtful Accounts.](https://reader035.fdocuments.net/reader035/viewer/2022062621/551c50cd550346b1458b4d09/html5/thumbnails/1.jpg)
14- 1
Accounting For
Bad Debts
Chapter 14
![Page 2: 14- 1 Accounting For Bad Debts Chapter 14. 14- 2 Learning Objective 1 Describing how the Bad Debts Expense account and the Allowance for Doubtful Accounts.](https://reader035.fdocuments.net/reader035/viewer/2022062621/551c50cd550346b1458b4d09/html5/thumbnails/2.jpg)
14- 2
Learning Objective 1
Describing how the Bad Debts
Expense account and theAllowance for Doubtful
Accounts account are usedto record bad debts.
![Page 3: 14- 1 Accounting For Bad Debts Chapter 14. 14- 2 Learning Objective 1 Describing how the Bad Debts Expense account and the Allowance for Doubtful Accounts.](https://reader035.fdocuments.net/reader035/viewer/2022062621/551c50cd550346b1458b4d09/html5/thumbnails/3.jpg)
14- 3
Bad debts are a dangerwhen credit sales areoffered to customers.
Learning Unit 14-1
![Page 4: 14- 1 Accounting For Bad Debts Chapter 14. 14- 2 Learning Objective 1 Describing how the Bad Debts Expense account and the Allowance for Doubtful Accounts.](https://reader035.fdocuments.net/reader035/viewer/2022062621/551c50cd550346b1458b4d09/html5/thumbnails/4.jpg)
14- 4
Learning Unit 14-1
Some credit sales end up as bad debts. These bad debts should be recognized in
the accounting period in which the sales were made.
Usually, bad debts do not end up as uncollectible until a year or so later.
![Page 5: 14- 1 Accounting For Bad Debts Chapter 14. 14- 2 Learning Objective 1 Describing how the Bad Debts Expense account and the Allowance for Doubtful Accounts.](https://reader035.fdocuments.net/reader035/viewer/2022062621/551c50cd550346b1458b4d09/html5/thumbnails/5.jpg)
14- 5
Learning Unit 14-1
An estimate is made as to how many of the current accounting period’s sales will be uncollectible.
A debit to Bad Debts Expense and a credit to a contra-asset account called Allowance for Bad Debts is the journal entry for this method.
![Page 6: 14- 1 Accounting For Bad Debts Chapter 14. 14- 2 Learning Objective 1 Describing how the Bad Debts Expense account and the Allowance for Doubtful Accounts.](https://reader035.fdocuments.net/reader035/viewer/2022062621/551c50cd550346b1458b4d09/html5/thumbnails/6.jpg)
14- 6
Learning Unit 14-1
The allowance amount is subtracted from Accounts Receivable.
This leaves a net realizable value for the receivables.
The Allowance for Bad Debts account is debited and Accounts Receivable credited when an account is written off as a bad debt.
![Page 7: 14- 1 Accounting For Bad Debts Chapter 14. 14- 2 Learning Objective 1 Describing how the Bad Debts Expense account and the Allowance for Doubtful Accounts.](https://reader035.fdocuments.net/reader035/viewer/2022062621/551c50cd550346b1458b4d09/html5/thumbnails/7.jpg)
14- 7
Accounts Affected Category RulesAccounts Affected Category Rules
Bad Debt Expense Expense Dr. Allowance for Contra- Cr. Doubtful Accounts Asset
Bad Debt Expense Expense Dr. Allowance for Contra- Cr. Doubtful Accounts Asset
Learning Unit 14-1
![Page 8: 14- 1 Accounting For Bad Debts Chapter 14. 14- 2 Learning Objective 1 Describing how the Bad Debts Expense account and the Allowance for Doubtful Accounts.](https://reader035.fdocuments.net/reader035/viewer/2022062621/551c50cd550346b1458b4d09/html5/thumbnails/8.jpg)
14- 8
Learning Objective 2
Using the income statementapproach and the balancesheet approach to estimatethe amount of Bad Debts
Expense.
![Page 9: 14- 1 Accounting For Bad Debts Chapter 14. 14- 2 Learning Objective 1 Describing how the Bad Debts Expense account and the Allowance for Doubtful Accounts.](https://reader035.fdocuments.net/reader035/viewer/2022062621/551c50cd550346b1458b4d09/html5/thumbnails/9.jpg)
14- 9
Learning Unit 14-2
Percentage of Sales
Adjusting entries are based on a % of net sales.Adjusting entries are based on a % of net sales.
The percentage used is based on past history.The percentage used is based on past history.
![Page 10: 14- 1 Accounting For Bad Debts Chapter 14. 14- 2 Learning Objective 1 Describing how the Bad Debts Expense account and the Allowance for Doubtful Accounts.](https://reader035.fdocuments.net/reader035/viewer/2022062621/551c50cd550346b1458b4d09/html5/thumbnails/10.jpg)
14- 10
Dec 31, 200xBad Debt Expense XXX
Allowance for Doubtful Accounts XXXRecord estimate of bad debts
Dec 31, 200xBad Debt Expense XXX
Allowance for Doubtful Accounts XXXRecord estimate of bad debts
Any existing balance in the Allowanceaccount is ignored.
Any existing balance in the Allowanceaccount is ignored.
Learning Unit 14-2
![Page 11: 14- 1 Accounting For Bad Debts Chapter 14. 14- 2 Learning Objective 1 Describing how the Bad Debts Expense account and the Allowance for Doubtful Accounts.](https://reader035.fdocuments.net/reader035/viewer/2022062621/551c50cd550346b1458b4d09/html5/thumbnails/11.jpg)
14- 11
Aging of Accounts Receivable
Adjusting entries are based on bringingthe Allowance account to a required amount.
Adjusting entries are based on bringingthe Allowance account to a required amount.
Learning Unit 14-2
![Page 12: 14- 1 Accounting For Bad Debts Chapter 14. 14- 2 Learning Objective 1 Describing how the Bad Debts Expense account and the Allowance for Doubtful Accounts.](https://reader035.fdocuments.net/reader035/viewer/2022062621/551c50cd550346b1458b4d09/html5/thumbnails/12.jpg)
14- 12
Learning Objective 3
Preparing an Agingof Accounts Receivable.
![Page 13: 14- 1 Accounting For Bad Debts Chapter 14. 14- 2 Learning Objective 1 Describing how the Bad Debts Expense account and the Allowance for Doubtful Accounts.](https://reader035.fdocuments.net/reader035/viewer/2022062621/551c50cd550346b1458b4d09/html5/thumbnails/13.jpg)
14- 13
Allowance forUncollectible
AccountsLength Amount %1-30 $100,000 1 $ 1,00031-60 80,000 3 2,40061-90 60,000 7 4,20090 + 40,000 9 3,600Total $280,000
$11,200
AccountsReceivable
Aging of Receivables Example
![Page 14: 14- 1 Accounting For Bad Debts Chapter 14. 14- 2 Learning Objective 1 Describing how the Bad Debts Expense account and the Allowance for Doubtful Accounts.](https://reader035.fdocuments.net/reader035/viewer/2022062621/551c50cd550346b1458b4d09/html5/thumbnails/14.jpg)
14- 14
The adjusting entry must include theamount that will leave an allowance
balance equal to the accountsreceivable that are not expected
to be collected.
The adjusting entry must include theamount that will leave an allowance
balance equal to the accountsreceivable that are not expected
to be collected.
Learning Unit 14-2
![Page 15: 14- 1 Accounting For Bad Debts Chapter 14. 14- 2 Learning Objective 1 Describing how the Bad Debts Expense account and the Allowance for Doubtful Accounts.](https://reader035.fdocuments.net/reader035/viewer/2022062621/551c50cd550346b1458b4d09/html5/thumbnails/15.jpg)
14- 15
Assume that the Allowance accounthas a credit balance of 1,000.
Dec 31, 200xBad Debt Expense 11,200
Allowance for Doubtful Accounts 11,200Record estimate of bad debts
Dec 31, 200xBad Debt Expense 11,200
Allowance for Doubtful Accounts 11,200Record estimate of bad debts
Learning Unit 14-2
![Page 16: 14- 1 Accounting For Bad Debts Chapter 14. 14- 2 Learning Objective 1 Describing how the Bad Debts Expense account and the Allowance for Doubtful Accounts.](https://reader035.fdocuments.net/reader035/viewer/2022062621/551c50cd550346b1458b4d09/html5/thumbnails/16.jpg)
14- 16
Learning Unit 14-2
Bad Debt Expense 10,200Allowance forDoubtful Accounts 10,200
To record allowance for uncollectibles
What is the adjusting entry?What is the adjusting entry?
![Page 17: 14- 1 Accounting For Bad Debts Chapter 14. 14- 2 Learning Objective 1 Describing how the Bad Debts Expense account and the Allowance for Doubtful Accounts.](https://reader035.fdocuments.net/reader035/viewer/2022062621/551c50cd550346b1458b4d09/html5/thumbnails/17.jpg)
14- 17
Learning Objective 4
Writing off an accountusing the Allowance for
Doubtful Accounts account.
![Page 18: 14- 1 Accounting For Bad Debts Chapter 14. 14- 2 Learning Objective 1 Describing how the Bad Debts Expense account and the Allowance for Doubtful Accounts.](https://reader035.fdocuments.net/reader035/viewer/2022062621/551c50cd550346b1458b4d09/html5/thumbnails/18.jpg)
14- 18
Allowance for Doubtful Accounts XXXAccounts Receivable, John Doe XXX
To write off John Doe’s account
Learning Unit 14-3
How do we write off an account using the Allowance account?
![Page 19: 14- 1 Accounting For Bad Debts Chapter 14. 14- 2 Learning Objective 1 Describing how the Bad Debts Expense account and the Allowance for Doubtful Accounts.](https://reader035.fdocuments.net/reader035/viewer/2022062621/551c50cd550346b1458b4d09/html5/thumbnails/19.jpg)
14- 19
Accounts Receivable, John Doe XXXAllowance for Doubtful Accounts XXX
To reinstate John Doe’s account
Accounts Receivable, John Doe XXXAllowance for Doubtful Accounts XXX
To reinstate John Doe’s account
Cash XXXAccounts Receivable, John Doe XXX
To record payment
Cash XXXAccounts Receivable, John Doe XXX
To record payment
Learning Unit 14-3
How do we record a recovered debt?
![Page 20: 14- 1 Accounting For Bad Debts Chapter 14. 14- 2 Learning Objective 1 Describing how the Bad Debts Expense account and the Allowance for Doubtful Accounts.](https://reader035.fdocuments.net/reader035/viewer/2022062621/551c50cd550346b1458b4d09/html5/thumbnails/20.jpg)
14- 20
Learning Objective 5
Using the direct write-off method.
![Page 21: 14- 1 Accounting For Bad Debts Chapter 14. 14- 2 Learning Objective 1 Describing how the Bad Debts Expense account and the Allowance for Doubtful Accounts.](https://reader035.fdocuments.net/reader035/viewer/2022062621/551c50cd550346b1458b4d09/html5/thumbnails/21.jpg)
14- 21
Bad Debt Expenses XXXAccounts Receivable, John Doe XXX
To write off John Doe’s account
Bad Debt Expenses XXXAccounts Receivable, John Doe XXX
To write off John Doe’s account
Learning Unit 14-3
How do we write off an account using the direct write-off method?
![Page 22: 14- 1 Accounting For Bad Debts Chapter 14. 14- 2 Learning Objective 1 Describing how the Bad Debts Expense account and the Allowance for Doubtful Accounts.](https://reader035.fdocuments.net/reader035/viewer/2022062621/551c50cd550346b1458b4d09/html5/thumbnails/22.jpg)
14- 22
Accounts Receivable, John Doe XXXBad Debts Recovered XXX
Accounts Receivable, John Doe XXXBad Debts Recovered XXX
Cash XXXAccounts Receivable, John Doe XXX
Cash XXXAccounts Receivable, John Doe XXX
Learning Unit 14-3
How do we record a recovered debt using the direct method?
![Page 23: 14- 1 Accounting For Bad Debts Chapter 14. 14- 2 Learning Objective 1 Describing how the Bad Debts Expense account and the Allowance for Doubtful Accounts.](https://reader035.fdocuments.net/reader035/viewer/2022062621/551c50cd550346b1458b4d09/html5/thumbnails/23.jpg)
14- 23
Accounts Receivable, John Doe XXXBad Debts Expense XXX
To reinstate John Doe’s account
Accounts Receivable, John Doe XXXBad Debts Expense XXX
To reinstate John Doe’s account
Cash XXXAccounts Receivable, John Doe XXX
Received payment
Cash XXXAccounts Receivable, John Doe XXX
Received payment
Learning Unit 14-3
How do we record a recovered debt the same year it was written off?
![Page 24: 14- 1 Accounting For Bad Debts Chapter 14. 14- 2 Learning Objective 1 Describing how the Bad Debts Expense account and the Allowance for Doubtful Accounts.](https://reader035.fdocuments.net/reader035/viewer/2022062621/551c50cd550346b1458b4d09/html5/thumbnails/24.jpg)
14- 24
End of Chapter 14