Bad Debts and Uncollectible Accounts Receivable

When we own a business, we hope that all the customers who jump goods or military service from us will pay in full. scarce in fact, a certain percentage of customers will default on their obligations. We need to consider this part of money to balance sheet, so that we writing them as writing off bad debts. depict Receivable We recognize Account Receivable from two different parts. 1) Service Organization, we record a due when it provides service on account. 2) Merchandiser, we records due at the point of sale of mathematical product on account.Bad Debt spending Under GAAP, when we sale goods or offer service to customers, we recognize the r level(p)ue as Sales Revenue on Income Statement- even the customers dont pay immediately. When we cant collect the due money, we have to report an expense to offset the revenue which we reported at the beginning of sale or service. This is the so called Bad Debt Expense. In some other words, seller records losses that result from extendi ng credit as Bad Debts Expense.Methods of news report for Uncollectible Accounts There are two methods to record the forged accounts. 1) lineal Write-Off. But it is theoretically undesirable. 2) Allowance Method. It is much better. Companies estimate uncollectible accounts receivable. wherefore account Bad Debts Expense and credit Allowance for Doubtful Accounts. Companies debit Allowance for Doubtful Accounts and credit Accounts Receivable at the time the item account is written off as uncollectible.Write-offs First of all, we need to specify a specific amount for the uncollectible account. For instance, we decide $1000 debt is uncollectible. Secondary, we slump the Account Receivable by $1000. We also decrease the allowance for probationary account by $1000. So, at the beginning we have $20000 for the account receivable and $2000 for allowance, then it falls down to $19000 and the allowance would drop to $1000. Then the give the axe account receivable is still $18000 the same as beginning. Eg Bed Debts Expense 1000Allowance for doubtful accounts 1000Balance Sheet Approach Under the percentage of receivables basis, management establishes a percentage relationship between the amount of receivables and expected losses from uncollectible accounts.