Uncollectible Accounts Expense Income Statement

There are two general approaches to estimate uncollectible accounts expense.

Uncollectible accounts expense income statement. Compute bad debt estimation using the income statement method where the percentage uncollectible is 5. Prepare the journal entry for the income statement method of bad debt estimation. If uncollectible accounts are expected to be 8 percent of that amount the expense is reported as 32 000 400 000 8 percent. Allowance of doubtful accounts contained in the balance sheet is increased by the journal entry.

When accounting for uncollectible accounts and recording the expense entry it s critical to follow established write off procedures and to save supporting documentation. Here s an example of how this works. The journal entries are nothing but the adjustments made at the end of accounting period. Accounts uncollectible are receivables loans or other debts that have virtually no chance of being paid.

The income statement account bad debts expense is part of the adjusting entry that increases the balance in the allowance for uncollectible accounts. How do you estimate the amount of. An account may become uncollectible for many reasons including the debtor s bankruptcy. While these expenses are listed on the income statement accurate presentation of uncollectible accounts expense is critical for analysis of financial statements.

Related q a what is the effect on the income statement when the allowance for uncollectible accounts is not established. Under this method the uncollectible accounts expense is recognized on the basis of estimates. Sales on account are 250 000 so the estimate for uncollectible accounts is 5 000 250 000 x 02. Uncollectible accounts expense definition see bad debts expense.

The first one is known as aging method or balance sheet approach and the second one is known as sales method or income statement approach. According to the general ledger the company generated 400 000 in credit sales during year two. The allowance for uncollectible accounts or allowance for doubtful accounts is a contra asset account that reduces the amount of accounts receivable to the amount that is more likely be collected. Bad debt expense the figure estimated must be raised from its present zero balance to 32 000.