The Unadjusted Balance In Allowance For Doubtful Accounts

The unadjusted balance in Allowance for Doubtful Accounts / Provision for Doubtful Debts of previous accounting period need to be adjusted in the current accounting period when we make credit sales and make an estimation of uncollectible accounts due on the basis of percentage of sales (Income Statement-Apprach) or percentage of closing balance of Accounts Receivable / Debtors (Balance Sheet-Approach).

Here, we adjust the unadjusted balance of allowance for doubtful accounts with the help of an example.

Suppose the unadjusted credit balance of allowance for doubtful accounts is Rs. 500 in the previous accounting period which is brought down to the current accounting period. Estimated Uncollectible Accounts Expense on Accounts Receivable (Based on Accounts Receivable Aging Report or Balance Sheet-Approach) is Rs. 900. Then what is the adjusted balance of allowance for doubtful accounts at 31^st December of the current accounting period.

First of all, we pass the adjusting journal entry for estimated amount of bad debts or uncollectible accounts expense in the current accounting period as shown below:

 Uncollectible Accounts Expense a/c  900

                                                              Allowance for Doubtful Accounts a/c  9000

                                    (Provide Allowance On Uncollectible Accounts for the Period)

>

Now, we will prepare t account of allowance for doubtful accounts

                                                     Allowance for Doubtful Accounts

 

                                                                        T Account

                                                                    For The Period

                                     Rs.                                                                       Rs.

                                                                         Balance b/d                    500

                                                        Uncollectible Accounts Expense    900

Balance c/d                  1400

                                   ______                                                                ______

                                      

                                    1400                                                                     1400

                                   ______                                                                ______

                                   ______                                                                ______ 

So, now the unadjuted value of allowance for doubtful accounts is adjusted and this adjusted value is the closing balance of allowance for doubtful accounts (Rs. 1400) which is deducted from Accounts Receivable / Debtors On Balance Sheet in order to calculate the Net Realizable Value of Accounts Receivable.