Bad Debts Expense and Allowance for Doubtful Accounts: ACC 281 Assignment – Week 3, Week 3

Summary

Bad debts and depreciation are two ways to account for assets losing value. Students get practice with journal entries and calculations.

Bad Debts Expense

Bad debts expense is a way to account for money owed to a business that may not be paid. The allowance for doubtful accounts is an estimate of how much of the accounts receivable will not be collected.

Three methods for bad debts

Three methods for estimating bad debts are percentage of sales, percentage of receivables, and aging of receivables. Each method has its own way of calculating the bad debts expense.

Depreciation Expense

Depreciation expense is a way to account for the wear and tear of assets over time. Different methods of depreciation are used for different types of assets.

Depreciation calculations

Depreciation calculations are shown for different types of assets and different methods of depreciation. Journal entries are given for recording depreciation and disposing of assets.

Key terms

Bad debts expense

Money that may not be collected from customers who owe the business.

Allowance for doubtful accounts

An estimate of the amount of accounts receivable that will not be paid.

Depreciation expense

The cost of an asset spread out over its useful life.

Accumulated depreciation

The total amount of depreciation expense recorded for an asset.

Gain on disposal

The profit made when an asset is sold for more than its book value.

Percentage of sales

A method for estimating bad debts based on a percentage of the sales made on credit.

Questions this document helps with

• How do you record bad debts expense using the allowance method?
• What are the three methods for estimating bad debts?
• How do you calculate depreciation expense for different types of assets?

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