Entries for Uncollectible Accounts
Kids-At-Play is a toy store that began operations this year. At the end of its first year
of operations, Kids-At-Play had accounts receivable totaling $50,000. The store's
manager estimates that $1,500 of those receivables will not be collected.
Journal entry to record uncollectible accounts at the end of the year:
Uncollectible Accounts Expense………………
1,500
Allowance for Doubtful Accounts…….
1,500
The year-end balance sheet will report the following balances under the Current
Assets section:
Accounts receivable
$50,000
Less allowance for doubtful accounts
1,500
Net realizable value of accounts receivable
$48,500
Assume that early in the second year of operations, Kids-At-Play decides to write off
as uncollectible a $500 receivable owed by Shirley Smith. Emphasize that once an
account has been determined to be uncollectible, it should be written off immediately.
This keeps the subsidiary ledger current for references on the credit standing of
customers.
Journal entry to write off the uncollectible account:
Allowance for Doubtful Accounts…………….
Accounts Receivable — S. Smith……..
500
500
Shirley Smith's $500 account was included in the $1,500 uncollectible accounts
expense recorded at the end of last year. Therefore, debiting the expense account now
would record the expense twice.
After writing off the uncollectible account, the T accounts and balance sheet would
appear as follows:
Accounts Receivable
Accounts
Bal. 50,000
1,500
Allowance for Doubtful
Entry to
500
Write-off
Account
Bal.
500
Bal. 49,500
1,000
Balance Sheet Presentation:
Accounts receivable
Less allowance for doubtful accounts
Net realizable value of accounts receivable
Bal.
$49,500
1,000
$48,500
Point out that the net realizable value of accounts receivable did not change. Kids-AtPlay still expects to collect $48,500 of its receivables. All that has changed is that the
company now knows that Shirley Smith, who owes $500, is one credit customer who
will probably not pay. There still is approximately $1,000 in bad debts left to be
discovered.
If George Jackson, will not be able to pay his $100 account receivable.
Allowance for Doubtful Accounts……………..
Accounts Receivable—G. Jackson…….
100
100
Assume that after Kids-At-Play has written off George Jackson's account, he does pay
the $100 he owes.
Step 1: The account must be reinstated.
Accounts Receivable—G. Jackson……………
Allowance for Doubtful Accounts…….
100
Step 2: The cash received is recorded.
Cash……………………………………………
Accounts Receivable—G. Jackson……
100
100
100