Chapter 6 Book Notes
Estimating bad debts:
Percentage of Credit sales method The total sales are multiplied by the amount of sales thought to be bad. This gives you the adjustment credit to be added to Allowance for Doubtful accounts.
Aging of accounts receivable Accounts receivable are aged and calculated based on historical estimates. This gives you the ending balance for Allowance for Doubtful accounts. The expense adjustment is calculated by subtracting the ending total and the starting total.
To estimate bad debts:
Step 1: Credit allowance for doubtful accounts. Debit bad debt expense.
Step 2: Debit allowance for doubtful accounts as necessary. Credit A/R.