Question

Suppose that the estimate of uncollectible accounts is based on credit sales and that Allowance for Doubtful Accounts has a debit balance before the adjustment is made. Explain how this situation is handled.

Answer 1

At the time of creating allowances fox doubtful accounts, we pass following entry Bad debt expenses (Debit) Allowances tu doubtful accounts Ccredit) At the time of writing off account reclivables. Allowances for doubtful accounts (Debit Account Receivables - Credit), If there is debit balance in allowances for doubtful accounts it indicates that we have written off account recevables in excess of provision - created * The debit balance in the allowances for doubtful accounts should be charged to bad debt expenses. Because no provision has been created tos that amount. Bad debt Expenses (Debit) Allowances for doubtful accounts for the amount showing C allowances account). Ccredit debit in