ECON 0710 Lecture Notes - Lecture 9: Interest Rate, Accounts Receivable, Current Asset
4 Apr 2016
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If collected within a year, considered current asset. Bad debt expense/uncollectible accounts expense or doubtful accounts expense. Two methods for uncollectible receivables: direct write off method, only when account determined to be worthless, usually small businesses, allowance method, estimates uncollectible accounts at the end of the accounting period, larger companies. Example: june: sold goods for , july 9: we receive ,200 from jd and wrote off the remainder owed of. Account receivable is ,100: oct 11: reinstate the account of jd and receive ,900 in full. 5100 (cause we"re not getting this, hence cr) Bad debt expense is recorded by an adjusting entry: example: Company estimates that ,000 accounts will be uncollectible but doesn"t know by end of period which account is uncollectible. Contra asset account called allowance for doubtful accounts is credited. Affects income and balance sheet: income. The ,000 bad debt expense will be matched to revenues: balance sheet.
