Uncollectible Accounts Expense / Doubtful Debt
It is an estimated bad debts expense which is created by making an estimation based on the past experience of customers (Accounts Receivable Aging Report) that some percentage of Accounts Receivable may not be recovered from our customer. It is also called Doubtful Debt under British Accounting System. It is different from Actual Bad Debts Written Off in the way that it is just an estimated expense which may come true or not while Actual Bad Written Off is the expense which is actually suffered by the business in the accounting period in which it is incurred
Uncollectible Accounts Expense Journal Entry
Considering the example of the Sales made to Customer (Mr. A) on 1st July, 2018 for Rs. 30000. Suppose, we make an estimation that 2% will not recovered from customer based on past experience
with this customer. Then following Accounting Journal Entry is passed in the Book of our company:
Uncollectible Account Expense a/c 600 (2% X 30000)
Allowances for Doubtful Accounts a/c 600
(Uncollectible Account Expense of 2% Recorded on Accounts Receivable)
Here, Accounts Receivable = Rs. 30000
Uncollectible Account Expense = 2 X 30000 = 600
Uncollectible Accounts Expense is recorded by preparing Uncollectible Accounts Expense Ledger account and it closed by transferring to Income Statement / Profit And Loss Account at the
end of Accounting Period while Allowance for Doubtful Accounts / Provision for Doubtful Debts which is a Contra Asset Account is transferred to Allowance for Doubtful Accounts’ Ledger Account and closing balance is deducted from the closing balance of Accounts Receivable in Balance Sheet.
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