1. Accounting For Bad Debts
Chapter 13

2. Describing how the Bad Debts Expense account and the
Learning Objective 1
Describing how the Bad Debts
Expense account and the
Allowance for Doubtful
Accounts account are used
to record bad debts.

3. Learning Unit 13-1 (Accrual Accounting and Bad Debts)
Companies that offer credit sales will be
unable to collect from some customers.
Some credit sales end up as bad debts.

4. Learning Unit 13-1 (Accrual Accounting and 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.

5. Learning Unit 13-1 (Accrual Accounting and Bad Debts)
An estimate is made as to how many of
the current sales will be uncollectible.
The Allowance for Bad Debts
(Allowance for Doubtful Accounts) is a
contra-account to Accounts Receivable.

6. Learning Unit 13-1 (Accrual Accounting and Bad Debts)
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.

7. Learning Unit 13-1 (Accrual Accounting and Bad Debts)
Accounts Affected Category Rules
Bad Debt Expense Expense Dr. 4,000
Allowance for Contra- Cr. 4,000
Doubtful Accounts asset
December 31
Bad Debt Expense ,600
Allowance for Doubtful Accounts ,600
To record estimate of bad debts

8. Learning Unit 13-1 (Accrual Accounting and Bad Debts)
Abby Ellen Company
Partial Balance Sheet
December 31, 20x1
Current Assets:
Cash $ 51,400
Accounts receivable $100,000
Less: Allowance for
doubtful accounts , ,400
Merchandise inventory ,000
Total current assets $349,800

9. Learning Unit 13-1 (Accrual Accounting and Bad Debts)
Writing off an account
Allowance for Doubtful Accounts 200
Accounts Receivable, J. Moore
Writing off J. Moore account

10. Using the income statement approach and the balance
Learning Objective 2
Using the income statement
approach and the balance
sheet approach to estimate the
amount of Bad Debts Expense.

11. Learning Unit 13-2 (Income Statement Approach)
Adjusting entries to record the
Bad Debts Expense are based on
a percentage of net credit sales.
The percentage used is
based on past history. 7

12. Learning Unit 13-2 (Income Statement Approach)
The credit department estimates that
uncollectible-account expense is 1% of
net credit sales, which were $80,000 for 20x4.
December 31
Bad Debts Expense
Allowance for Doubtful Accounts
To record estimate of bad debts (.01 × $80,000)

13. Learning Unit 13-2 (Income Statement Approach)
Any existing balance in the
Allowance account is ignored.
Accounts Receivable
Bal. 7,000
Allowance for
Doubtful Accounts
100
800 Adj.
900 Bal.

14. Learning Unit 13-2 (Balance Sheet Approach)
Adjusting entries are
based on bringing the
Allowance account to
a required amount.
This method is a
balance-sheet approach
because it focuses
on accounts receivable. 7

15. of Accounts Receivable.
Learning Objective 3
Preparing an Aging
of Accounts Receivable.

16. Learning Unit 13-2 (Balance Sheet Approach)
Not Yet Due
Days Past Due
1-30 days
31-60 days
61-90 days
Over 90
Accounts
Receivable
$3,600
2,000
870
200
330
$7,000
Estimated %
Bad Debt
Expense 3 4 10 20 50
Allowance
for Doubtful
$108 80 87 40
165
$480
Less current balance
Adjusting entry
–100
$380

17. Learning Unit 13-2 (Balance Sheet Approach)
The adjusting entry must include
the amount that will leave an
allowance balance equal to the
accounts receivable that are
not expected to be collected.

18. Learning Unit 13-2 (Balance Sheet Approach)
Bad Debts Expense
Allowance for Doubtful Accounts
($480 – $100)
Recorded expense for the year
Accounts Receivable
Bal. 7,000
Allowance for
Doubtful Accounts
100
380 Adj.
480 Bal.

19. using the Allowance for Doubtful Accounts account.
Learning Objective 4
Writing off an account
using the Allowance for
Doubtful Accounts account.

20. Learning Unit 13-3 (Writing Off and Recovering)
Suppose that in 20x7, the Abby Ellen
Company determines that the account
of Jill Sullivan for $900 is uncollectible.
The account must be written off.
How?

21. Learning Unit 13-3 (Writing Off and Recovering)
Allowance for Doubtful Accounts 900
Accounts Receivable, Jill Sullivan
Wrote off Sullivan account 9

22. Learning Unit 13-3 (Writing Off and Recovering)
How is a recovered debt recorded?
Accounts Receivable, John Doe XXX
Allowance for Doubtful Accounts XXX
To reinstate John Doe’s account
Cash XXX
Accounts Receivable, John Doe XXX
To record payment

23. Using the direct write-off method.
Learning Objective 5
Using the direct write-off method.

24. Learning Unit 13-3 (Writing Off and Recovering)
How do we write off an account
using the direct write-off method?
Bad Debt Expenses XXX
Accounts Receivable, John Doe XXX
To write off John Doe’s account

25. Learning Unit 13-3 (Writing Off and Recovering)
How do we record a recovered
debt using the direct method?
Accounts Receivable, John Doe XXX
Bad Debts Recovered XXX
Cash XXX
Accounts Receivable, John Doe XXX

26. Learning Unit 13-3 (Writing Off and Recovering)
How do we record a recovered debt
the same year it was written off?
Accounts Receivable, John Doe XXX
Bad Debts Expense XXX
To reinstate John Doe’s account
Cash XXX
Accounts Receivable, John Doe XXX
Received payment

27. End of Chapter 13