Chapter 13
Accounting for Bad Debts
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Practical Approach, 11e by Slater
Learning Objective 1
Describing how the Bad Debts Expense
account and the Allowance for Doubtful
Accounts account are used to record bad
debts
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LO-1
Bad Debts
Debts that come from credit customers
who do not pay their bills
 Affects a company’s credit policy
 Cannot grant credit to just any company

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LO-1
Bad Debts
On December 1, 2008, Corey Co. sold
merchandise on account for $5,000.
On July 1, 2009, Corey Co. determines that the
$5,000 will never be collected.
2008
Dec 1
Sales of
$5,000
recorded
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Practical Approach, 11e by Slater
2009
Jul 1
Debt
determined
to be bad
Dec 31
End of
fiscal
year
LO-1
Bad Debts
Bad debts expense should be recognized in
the accounting period in which the sales
were made.
2008
Dec 1
Sales of
$5,000
recorded
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Publishing, College Accounting: A
Practical Approach, 11e by Slater
2009
Dec 31
End of
fiscal
year
Jul 1
Debt
determined
to be bad
LO-1
Bad Debts
Solution: Estimate how many of the current
sales will be uncollectible
Prepare an
adjusting entry
2008
Dec 1
Sales of
$5,000
recorded
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Publishing, College Accounting: A
Practical Approach, 11e by Slater
2009
Dec 31
End of
fiscal
year
Jul 1
Debt
determined
to be bad
LO-1
Allowance for Doubtful Accounts
Is a contra-asset account
 Is subtracted from accounts receivable
 Accumulates expected amount of
uncollectibles as of a given date

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Practical Approach, 11e by Slater
LO-1
Adjusting Entry for Bad Debts
General Journal
Page 8
Date
Account Titles and
Description
Dec 31 Bad Debts Expense
PR
Dr.
Cr.
XXXX
Allowance for
Doubtful Accounts
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Practical Approach, 11e by Slater
Contra-Asset
Account
XXXX
LO-1
Balance Sheet Presentation
Gross
Amount
Corbin Company
Partial Balance Sheet
December 31, 200X
Estimated to
be
Uncollectible
Current Assets:
Cash
Accounts receivable $100,000
Less: Allowance for
doubtful accounts
6,000
Merchandise inventory
Total current assets
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Practical Approach, 11e by Slater
Total Current
Assets
Net
Realizable
Value
$ 10,400
94,000
300,000
$404,400
LO-1
Net Realizable Value
•
•
The amount of Accounts Receivable that
is expected to be collected
Calculated by subtracting Allowance for
Doubtful Accounts from Accounts
Receivable
LO-1
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Writing off an account
General Journal
Page 8
Date
Jul
1
Account Titles and
Description
Allowance for Doubtful
Accounts
Accounts Receivable-Discello
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Practical Approach, 11e by Slater
PR
Dr.
Cr.
5,000
5,000
LO-1
Learning Objective 2
Using the income statement approach and
the balance sheet approach to estimate
the amount of Bad Debts Expense
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Practical Approach, 11e by Slater
LO-2
Estimating the Amount
General Journal
Page 8
Date
Account Titles and Description PR
Dec 31 Bad Debts Expense
Dr.
Cr.
XXXX
Allowance for Doubtful
Accounts
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Practical Approach, 11e by Slater
How is this
amount
determined?
XXXX
LO-2
Income Statement Approach
Bad Debts Expense =
Percentage of net credit sales
Focus is on measuring
the expense, which is
reported on Income
Statement.
Matching requirementignores previous balance of
Allowance for Doubtful
Accounts when estimating
Bad Debts Expense for
current period.
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Publishing, College Accounting: A
Practical Approach, 11e by Slater
LO-2
Exercise 13-2
Compute Net Sales:
Sales Returns & Allowances
Sales Discounts
Net Sales
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Practical Approach, 11e by Slater
Sales
$110,000
(500)
(9,500)
$100,000
LO-2
Exercise 13-2
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Practical Approach, 11e by Slater
LO-2
Exercise 13-2
General Journal
Page 8
Date
Account Titles and
Description
Dec 31 Bad Debts Expense
Allowance for Doubtful
Accounts
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Publishing, College Accounting: A
Practical Approach, 11e by Slater
PR
Dr.
Cr.
4,000
4,000
LO-2
Exercise 13-2
Any existing balance in the
Allowance account is ignored.
Accounts Receivable
Bal. 30,000
Allowance for
Doubtful Accounts
5,000
4,000 Adj.
$9,000 Bal.
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Practical Approach, 11e by Slater
LO-2
Balance Sheet Approach
Adjusting entries are based on bringing the Allowance
account to a required amount.
 Method is based on the Accounts Receivable amount
and the aging process.
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Practical Approach, 11e by Slater
LO-2
Balance Sheet Approach

Net realizable value - The amount (accounts receivable
– Allowance for doubtful accounts) that is expected to
be collected.
Focus is on determining the
net realizable value of
Accounts Receivable, which
is reported on Balance Sheet
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Practical Approach, 11e by Slater
LO-2
Learning Objective 3
Preparing an Aging of Accounts Receivable
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Practical Approach, 11e by Slater
LO-3
Example
Mayfair Co. has the following balances in its
accounts at the end of 2008
Accounts Receivable
Bal. 30,000
Allowance for
Doubtful Accounts
500
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Practical Approach, 11e by Slater
LO-3
The following aging schedule is prepared for the
end of the year. Complete the schedule.
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LO-3
Example
Accounts Receivable
Bal. 30,000
Allowance for
Doubtful Accounts
500
2,179
Desired balance 2,679
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Practical Approach, 11e by Slater
LO-3
What if the Allowance account had a debit
balance of $500 before adjustment?
Accounts Receivable
Bal. 30,000
Allowance for
Doubtful Accounts
500
3,179
Desired balance 2,679
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Publishing, College Accounting: A
Practical Approach, 11e by Slater
LO-3
Learning Objective 4
Writing off an account using the Allowance
for Doubtful Accounts method
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Publishing, College Accounting: A
Practical Approach, 11e by Slater
LO-4
Allowance for Doubtful
Accounts
 When a company deems an account uncollectible, it is
written off and no longer considers it an asset.
 When the journal entry is made, allowance for doubtful
accounts and accounts receivable are reduced.
Example: J. Monaco’s account balance of $500 is deemed
uncollectible on June 1, 20X8.
General Journal
Page 8
Date
Account Titles and Description
PR
Dr.
Cr.
20X8
Jun
1
Allowance for Doubtful Accounts
Accounts Receivable, J. Monaco
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500
500
LO-4
Recording Recovered Debts using
Allowance for Doubtful Accounts
Example: Assume J. Monaco paid half of his
account balance of $500 on January 3, 20X9.
General Journal
Page 8
Date
Account Titles and Description
PR
Dr.
Cr.
20X9
Jan
3
Accounts Receivable, J. Monaco
250
Allowance for Doubtful Accounts
250
Restores collectible portion
3
Cash
Accounts Receivable, J. Monaco
250
250
Records payment received
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Publishing, College Accounting: A
Practical Approach, 11e by Slater
LO-4
Exercise 13-4 (a)
Writing off an account using the Allowance
for Doubtful Accounts account
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Publishing, College Accounting: A
Practical Approach, 11e by Slater
LO-2, 4
Exercise 13-4 (a)
Accts. Rec., Angie Ring
Accts. Rec., Mike Catuc
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Publishing, College Accounting: A
Practical Approach, 11e by Slater
LO-2, 4
Exercise 13-4 (a)
Accts. Rec., Mike Catuc
Accts. Rec., Mike Catuc
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Publishing, College Accounting: A
Practical Approach, 11e by Slater
LO-2, 4
Learning Objective 5
Using the direct write-off method
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Publishing, College Accounting: A
Practical Approach, 11e by Slater
LO-5
Direct Write-Off Method
Used when a company cannot reasonably
estimate bad debt expense
 Uncollectible accounts are directly
written off to current year’s bad debt
expense
 The year sale was made does not matter
 Allowance for doubtful accounts is not
used

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Practical Approach, 11e by Slater
LO-5
Direct Write-Off Method
Example: T. DeStadio’s account balance of $400 is
deemed to be uncollectible on May 15, 20X7.
General Journal
Page 8
Date
Account Titles and Description
PR
Dr.
Cr.
20X7
May
15
Bad Debts Expense
Accounts Receivable, T DeStadio
400
400
Wrote off account
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Practical Approach, 11e by Slater
LO-5
Direct Write-Off Method
Recording Recovered Debts in same year


Assume T. DeStadio paid $200 of his balance July 3,
20X7.
Reverse the entry made prior by $200
General Journal
Page 8
Date
Account Titles and Description
PR
Dr.
Cr.
20X7
July
3
Accounts Receivable, T DeStadio
Bad Debts Expense
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Practical Approach, 11e by Slater
200
200
LO-5
Direct
Write-Off
Method
Recording Recovered Debts in different year


A new account- Bad Debts Recovered is used
Assume T. DeStadio paid $200 of his balance on July 3, 20X8.
General Journal
Page 8
Date
Account Titles and Description
PR
Dr.
Cr.
20X8
July
3
Accounts Receivable, T DeStadio
200
Bad Debts Recovered
200
Restores collectible portion
3
Cash
Accounts Receivable, T DeStadio
200
200
Records payment received
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Publishing, College Accounting: A
Practical Approach, 11e by Slater
LO-5
Exercise 13-4 (b)
Accts. Rec., Angie Ring
Accts. Rec., Mike Catuc
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Publishing, College Accounting: A
Practical Approach, 11e by Slater
LO-5
Exercise 13-4 (b)
Accts. Rec., Mike Catuc
Accts. Rec., Mike Catuc
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Publishing, College Accounting: A
Practical Approach, 11e by Slater
LO-5
End of Chapter 13
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Publishing, College Accounting: A
Practical Approach, 11e by Slater