The uncollectible accounts expense (debited in the above entry) is closed into income summary account like any other expense account and the allowance for doubtful accounts (credited in the above entry) appears in the balance sheet as a deduction from the face value of accounts receivable.
Bad Debts Expense is an income statement account while the latter is a balance sheet account. Bad Debts Expense represents the uncollectible amount for credit sales made during the period . Allowance for Bad Debts, on the other hand, is the uncollectible portion of the entire Accounts Receivable .
The adjusting entry would still be for $5,000. However, the balance sheet would show $100,000 accounts receivable less a $5,300 allowance for doubtful accounts, resulting in net receivables of $ 94,700. On the income statement, Bad Debt Expense would still be 1%of total net sales, or $5,000. In accrual-basis accounting, recording the allowance for doubtful accounts at the same time as the sale improves the accuracy of financial reports. The projected bad debt expense is properly matched against the related sale, thereby providing a more accurate view of revenue and expenses for a specific period of time. The doubtful accounts will be reflected on the company’s next balance sheet, as a separate line. It will offset the accounts receivable by $10,000. The remaining amount from the bad debt expense account (the portion of the $10,000 that is never paid) will show up on a company’s income statement. Does Allowance for Doubtful Accounts Get Closed?
(a) bad debts expense is expected to be 2% of net credit sales for the year. Activity Operating Accounts Allowance for Doubtful Accounts Increase, Bad Debts Expense Increase Statement(s) Balance Sheet and Income Statement Feedback Under the percentage of credit sales approach the emphasis is on the bad debts expense and income statement.