Allowance for Doubtful Accounts: Accounting Problems – Chapter 5

Summary

Accounting problems involving the allowance for doubtful accounts are discussed. Students get practice with calculations and journal entries for bad debts.

Problem 5-24 Part A

A company's accounts receivable and allowance for doubtful accounts are updated. The balance in the allowance account is adjusted based on a percentage of sales.

Problem 5-24 Part B

The difference between uncollectible accounts expense and the write-off of bad accounts is explained. The expense is an estimate, while the write-off is the actual amount determined to be uncollectible.

Problem 5-26 Part A

A company's net accounts receivable is calculated. The allowance for doubtful accounts is subtracted from the total accounts receivable.

Problem 5-26 Part B

The uncollectible accounts expense is calculated as a percentage of the allowance for doubtful accounts.

Problem 5-26 Part C

The adjusted allowance for doubtful accounts is calculated. The expense is subtracted from the original allowance.

Key terms

Accounts Receivable

Money owed to a company by customers for goods or services delivered.

Allowance for Doubtful Accounts

A contra-asset account that estimates the amount of accounts receivable that will not be collected.

Uncollectible Accounts Expense

An expense account that records the estimated amount of accounts receivable that will not be collected.

Write-off of Bad Accounts

The process of removing uncollectible accounts from the accounts receivable.

Net Realizable Value

The amount of accounts receivable that is expected to be collected.

Journal entries

Records of financial transactions in the accounting books.

Questions this document helps with

• How do you calculate the allowance for doubtful accounts?
• What is the difference between uncollectible accounts expense and write-off of bad accounts?
• How do you adjust the allowance for doubtful accounts?

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