1)DirectWrite-offMethodBadDebtExpenseaccountisestablishedtorecordthe uncollectible receivables.Identified bad debtsare credited directly to Bad Debt Expense when itoccurs.Example:K15soldmerchandiseof$10,000toSpeed5oncreditonApril 1.It was later recognized uncollectible on Dec.20162025/12/3
16 2025/12/3 1)Direct Write-off Method ⚫ Bad Debt Expense account is established to record the uncollectible receivables. Identified bad debts are credited directly to Bad Debt Expense when it occurs. Example: ⚫ K15 sold merchandise of $10,000 to Speed 5 on credit on April 1.It was later recognized uncollectible on Dec. 20
April1,Whentransactionoccurred10,000Dr.AccountsReceivable-Speed510,000Cr.SalesRevenueDec.20, when thebad debt is recognized10,000Dr.BadDebtsExpense10,000Cr.AccountsReceivable-Speed5172025/12/3
17 2025/12/3 Dr. Accounts Receivable-Speed 5 10,000 Cr. Sales Revenue 10,000 April 1, When transaction occurred Dr. Bad Debts Expense 10,000 Cr. Accounts Receivable-Speed 5 10,000 Dec.20, when the bad debt is recognized
When bad debt written off is recovered again10,000Dr.AccountsReceivable-Speed510,000Cr.BadDebtsExpenseDr.Cash10,00010,000Cr.AccountsReceivable-Speed5182025/12/3
18 2025/12/3 When bad debt written off is recovered again Dr. Cash 10,000 Cr. Accounts Receivable-Speed 5 10,000 Dr. Accounts Receivable-Speed 5 10,000 Cr. Bad Debts Expense 10,000
Thismethodisbasedonfactsinsteadofonestimates,it goes contrary to the matchingprinciple and the accrual basis in theory inthat bad debts written-off are often not in thesame accountingperiod as the sales,and isgenerally notacceptableforfinancialreportingpurposes.192025/12/3
19 2025/12/3 ⚫ This method is based on facts instead of on estimates, it goes contrary to the matching principle and the accrual basis in theory in that bad debts written-off are often not in the same accounting period as the sales, and is generally not acceptable for financial reporting purposes
2)Allowance MethodTheallowancefordoubtful accountsestimatestheamountofbad debts onaregularbasisAllowanceestimatesAginganalysismethodPercentageofSalesMethodPercentageofReceivablesMethod202025/12/3
20 2025/12/3 2)Allowance Method ⚫ The allowance for doubtful accounts estimates the amount of bad debts on a regular basis. Allowance estimates Percentage of Sales Method Percentage of Receivables Method Aging analysis method