If A Company Fails To Record Estimated Bad Debts Expense Or Uncollectible Accounts Expense

If a firm or company fails to record Uncollectible Accounts Expense or Doubtful Debts, then the result is that Credit Sales will be increased / overstated and Expenses will be understated but Revenues will be overstated and hence Net Income / Net Profit shown in the Income Statement / Profit And Loss Account will also be overstated. While it will also affect the Net Relizable Value of Accounts Receivable on Balance Sheet that will also be overstated. In this case, pass the entry again if the company fails to record complete journal entry i.e. Debit the Uncollectible Expense and Credit the Allowance For Doubtful Accounts / Provision for Doubtful Debts, and deduct Allowance for Doubtful Accounts from Closing Balance of Accounts Receivable on Balance Sheet.

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So to rectify this error or mistake, deduct the estimated bad debs expense from Net Income / Net Profit in Income Statement for the period and allowance for doubtful accounts, which is a Contra Asset Account, from the Ending Balance of Accounts Receivable on Balance Sheet.