Chapter 15 - Bad and Doubtful Debts Flashcards
Bad debt definition
a debt that must be ‘written off’ as irrecoverable or uncollectable because it has been confirmed that the Account Receivable is unable to pay due to liquidation or bankruptcy
Doubtful Debt Definition
a debt that is unlikely to be collected in the future but has not yet been ‘written off’ as it has not been confirmed that the Account Receivable is unable to pay
Referring to two Qualitative characteristics, explain why is necessary to recognise and report Bad debts expense.
Recognising bad debts ensures that the Income Statement and Balance Sheet provide a more Faithful representation of the firm’s performance and position, and the owner has all Relevant information that may affect decision-making.
Allowance for Doubtful Debts Definition
a negative asset account that records the balance of doubtful debts (that are unlikely to be collected in the future but have not yet been written off)
Show the entries for the creation of doubtful debts
Bad Debts DR
All. For doubtful Debts CR
‘Creation of allowance for doubtful debts - 2% of net credit sales (memo 104)’
How is allowance for doubtful debts recorded in the BS
It is taken away from the Accounts Receivable figure for that period so it underneath it.
General Journal Entries for writing of a bad debt
All. For Doub Debts DR
GST clearing DR
AR - name CR
‘Debt written off as uncollectable due to bankruptcy (memo 129)’
How does All. For Doubtful debts change if there is already a balance
You figure out the estimated bad debts figure then take away the balance in the All. For Doubtful debts ledger then do the same entries as normal with this taken away figure.
