Under the Allowance Method Bad Debt Expense is Recorded

Under the Allowance Method / Approach, the estimated amount of Bad Debt Expense is recorded by considering the estimated amount of unpaid invoices either by using the percentage of sales method (Income Statement-Approach) or percentage of receivables method or aging of Receivables (Balance Sheet-Approach) that will be probably not recovered or collected from customers or receivables in future. The company also follows Matching Principle Gaap (Generally Accepted Accounting Principles) by matching estimated bad debt expense with Credit Sales of unpaid invoices for the period. The company records the following Adjusting Entry to estimate Uncollectible Accounts Expense / Doubtful Debts or Estimated amount of bad debt expense as shown below:

       Uncollectible Accounts Expense a/c  XXX

                                                                 Allowance for Doubtful Accounts a/c  XXX

(Allowance for Doubtful Accounts Is Created Against Uncollectible Accounts)

In the next accounting period, if the amount due is not recovered from customer, then this uncollectible accounts expense becomes Actual Bad Debts Expense which is to be written off from Sundry Debtors / Accounts Receivable. The following Entry is passed for Actual Bad Debt Expense as shown below:

                                   Bad Debts Expense a/c    XXX

                                                                        Accounts Receivable a/c    XXX

(Bad Debts Expense Incurred For the Period)