Allowance for Doubtful Accounts Journal Entries
Quick Answer: The allowance method estimates uncollectible accounts in advance. Bad debt expense is recorded by debiting expense and crediting the contra-asset Allowance for Doubtful Accounts. Actual write-offs reduce both AR and the allowance, with no P&L impact.
1. Recording Bad Debt Expense (Period-End Adjustment)
Methods: percentage of sales or aging analysis.
Dr. Bad Debt Expense — $8,000
Cr. Allowance for Doubtful Accounts — $8,000
(Estimated uncollectible based on aging schedule)
Cr. Allowance for Doubtful Accounts — $8,000
(Estimated uncollectible based on aging schedule)
2. Writing Off Uncollectible Account
When specific customer deemed uncollectible:
Dr. Allowance for Doubtful Accounts — $1,200
Cr. Accounts Receivable [Customer] — $1,200
(No P&L impact — expense already recorded)
Cr. Accounts Receivable [Customer] — $1,200
(No P&L impact — expense already recorded)
3. Account Recovery
Customer pays after write-off:
Reinstate receivable:
Dr. Accounts Receivable [Customer] — $1,200
Cr. Allowance for Doubtful Accounts — $1,200
Record cash receipt:
Dr. Cash — $1,200
Cr. Accounts Receivable [Customer] — $1,200
Dr. Accounts Receivable [Customer] — $1,200
Cr. Allowance for Doubtful Accounts — $1,200
Record cash receipt:
Dr. Cash — $1,200
Cr. Accounts Receivable [Customer] — $1,200
4. T-Account Summary
Accounts Receivable (Gross) Allowance for Doubtful Accounts ------------------------- ------------------------------- Bal $100,000 Bal $5,000 (credit) "Actually" collectible: $95,000 Net Realizable Value = $95,000
