Allowance For Doubtful Accounts T Account / Provision For Doubtful Debts T Account

Allowance For Doubtful Accounts T Account is a Ledger that records the Estimation on Accounts Receivable for which the Entrepreneur or Company may doubt that the amount of payment, for goods sold on account or services rendered on account, not received in the Current Accounting Period.

When the goods are sold on account or services are rendered on account, then there are chances the some portion of the amount of goods sold or services rendered on account may not be recovered due to New Customers or Credibility of New Customers. So, it is better to Create Allowance For Doubtful Accounts for recording such estimation on Accounts Receivable for which the business is expected the amount may be Uncollectible.

How To Calculate Allowance For Doubtful Accounts / Provision For Doubtful Debts?

                                                                    Or

How To Calculate Ending Balance In allowance For Doubtful Accounts By Preparing T Account

Suppose, the company makes an estimation of 3% on Accounts Receivable (700000) and this portion of Receivables or the amounts of debts due may not be recovered from the customers, then following Accounting Journal Entries are Recorded in The Book of Company at the time of Estimation on Accounts Receivable.

Uncollectible Accounts Expense a/c / Doubtful Debts a/c 21000

                                   Allowance For Doubtful Accounts a/c / Provision For Doubtful Debts a/c 21000

(3% Allowance on Accounts Receivable Recorded)

If this is the First year of Business i.e., 2017, then this entry is recorded in the Allowance For Doubtful Accounts / Provision For Doubtful Debts Ledger as shown below:

                                                       ABC Company

Allowance For Doubtful Debts / Provision For Doubtful Debts 

For The Accounting Period 2017 

  

                                              Rs.                                                                      Rs. 

  

                                                              Uncollectible Accounts Expense    21000 

  

  

Balance c/d                       21000 

The closing balance is Deducted From Accounts Receivable in Balance Sheet, while Uncollectible Accounts Expense is closed and transferred to Income Statement or Profit & Loss Account on the Expense Side.

Now, if again the next year i.,e., 2018, if it is expected that 2% on Accounts Receivable (800000) may be uncollectible at the end of accounting period, then following Accounting Journal Entry is passed as it is passed in the start of the business year:

Uncollectible Accounts Expense / Doubtful Debts a/c 16000

          Allowance For Doubtful Accounts / Provision For Doubtful Debts a/c 16000

(2% Allowance on Accounts Receivable Recorded)

Now, this entry is recorded in the Allowance For Doubtful Accounts / Provision For Doubtful Debts’ Ledger as shown below:

                                                      ABC Company 

Allowance For Doubtful Debts / Provision For Doubtful Debts 

For The Accounting Period 2018

                                         Rs.                                                                         Rs.

 

                                                                          Opening Balance               21000

                                                            Uncollectible Accounts Expense     16000

 

Balance c/d                    37000

This Closing Balance is Deducted From Accounts Receivable In Balance Sheet and Uncollectible Accounts Expense is closed and transferred to Profit And Loss Account On The Expense Side.

Allowance For Doubtful Accounts Debit or Credit

Allowance For Doubtful Accounts Debit or Credit means that Actual Bad Debts Expense are greater or lesser than Allowance For Doubtful Accounts. If there is a Debit Balance of Allowance For Doubtful Accounts, then it means that we underestimate our Bad Debits Expense, so we need to adjust it by passing the following Entry in the book of Company:

Uncollectible Accounts Expense / Doubtful Debts a/c  XXX

              Allowance For Doubtful Accounts / Provision For Doubtful Debts a/c   XXX

Similarly, if there is a Credit Balance of Allowance For Doubtful Accounts, then we need to reverse the above entry as we overestimate Bad Debts while in reality, the actual Bad Debits amount is less than we expected for Bad Debts Expense.

  Allowance For Doubtful Accounts / Provision For Doubtful Debts a/c  XXX                            

                                    Uncollectible Accounts Expense / Doubtful Debts a/c    XXX

So, it is all about Provision For Doubtful Debts T Account / Allowance For Doubtful Accounts T Account or Ledger Account In Accounting.