Allowance For Doubtful Accounts Explained with Examples

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Download the Excel template shown in this video:

What we cover in this video:
Why do we record an allowance for doubtful accounts?
What are the methods used in the calculations?
And toward the end of the video, I’ll show you how to choose a method and what audit support you’re gonna need.

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[PavanKumar-vscn]

I'm a student of ICAI (Chartered Accountant India) and I must admit your videos are really
insightful!!

[erikmacias]

Thanks Bill! Just came across bad debt allowance in reviewing the month end close files at my new employer. This really helps. I am currently enrolled in your controller academy and look forward to this module when I get to that point of the course.

[ahabjordan]

Bill I am learning from you like a new student never had MBA in accounting & finance, I am still I don’t have experience though.
Thank so much ❤

[auraak]

Hi Bill, A perfect explanation. Learning a lot from your videos. Thanks.
1. Your introduction was not included in this video.
2. Is credit worthiness of debtor perforned by AR department?
3. Once customer is back to business, are we not going to reduce bad debt expenses to that extent?

Thanks again.

[alyaniali]

Really helps a lot about bad debt.

Especially for Account receivable department

[mihlotiwilliams]

You are awesome. This helped me understand allowance for doubtful accounts and bad debt expense. Thank you very much!

[mohamedwarfa]

Hi Bill. Thanks for good video. For those who are in the field of accounting, would it be possible to do videos on more advanced accounting such as debt modification/restructuring, stock option expense accounting with assumptions for Black-Scholes, convertible debt into equity, new guidance on estimating credit losses, ASC 606, etc. For those of us in the field, the videos might be a little beginner which is fine but just letting you know you have other audience who would like more advanced accounting videos. Thanks.

[FujiMezu]

If I'm interested in accounting as a career, should I apply for entry-level positions to really see what it's like or ask for a job-shadowing experience?

[rose_mary_z]

Hi Mr.Bill, if I may.. I think there's a slight correction on your example. The total allowance for doubtful account based on the assigned % in the aging report is $5, 804 and accordingly you created the journal entry. Then the next example wherein you write off the full invoice amount of Amazin Skin is $ 4, 899 based on the given info, I think the entry should be Dr. Allowance for BD $ 244.95 Dr. Bad debt expense $ 4, 654.05 and Cr A/R $4, 899. Reason is that only 5% of 4899 was previously provided before you realized the customer won't pay the full amount, so we directly write off to bad debt expense the 95% of the inv amount since not provided earlier. If we reverse $4899 (out of $5, 804) allowance for bad debt it would include the rest of the customers earlier provided.

[GnarshredProductions]

ASC 326 says its called allowance for credit loss now "CECL". Allowance for doubtful accounts is no more.

[ShoOnlineAcademy]

Thanks for the video. You didn't mention that you write off the AR via sub-ledger or General ledger? if thr latter, how do you clean up Aging balance?

[Bforzajuve]

Very nice explanation. I have a specific problem. I have to deal with the following situation. Company A took some loan from Company B. Company A ceased to exist and transfer the liabilities for those loans to Company C.

Now Company C has to return money to Company B.

If I am the accountant of Company C how should I record the transaction in our accounting system?

Thank you very much.

[zahraharam]

Hello
Thank you for the valuable information you share it with as, ,

I have the inquiry about
1 .The percent it is fixed or it varies from one entity to another?

There is any measurement for the estimated probability percentage?

2. The estimated amount for the bad debt it should not equal under all the methods you listed in the video?
Because I observed the amount under each method totally different

[ajongoloseun]

Insightful. Do you add back at the end of the year if all customers fully pay back or still maintain the allowance into another year?

[hadilnasser-kz]

Hi, Can you tell me what is gonna be the entry if they paid me in cash after making the Doubtful debt entry

[IbrahimKhan-xfmg]

Hi Bill, I have question on Journal entry. When we book the allowance for doubtful account. We will
Dr. Bad debt and
Cr. Allowance for doubtful account.
When we write off - Dr. Allowance for doubtful account.
Cr. Account Receivable.
When customer agreed to pay.
We Dr. Account Receivable
Cr. Allowance for doubtful account.
Then Cr. Account Receivable
Dr. BANK ACCOUNT.
What about the balance is sitting in p&l as bad debt expense?
The journal entry should be
Cr. Bad debts
Dr. Allowance for doubtful account?
Please clarify. Thanks in advance

[VannyPinkLopez]

Thank you, Sir. Can you please give an explanation to percentage of accounts receivable method with an existing allowance for bad debts? It had the same method of calculating for percentage of sales but if there's an existing ABD, its value (existing ABD) is supposedly a part of the total value when you multiply the percentage to the accounts receivable. So when you journal it, the amount you put should be the difference between the amount when you multiplied the percentage to the A/R and existing ABD. My question to that is why is the existing ABD already a part of the total whereas if it was on the percentage of sales method you add the two? I hope I delivered my point correctly and may you please notice it, Sir or anyone please.

[malamofficial]

Finally, if customer paid AR, what we will journal entry to off set that Cr. Allowance for doubtful account? Will we Dr. Allowance for doubtful account Vs Credit Bad debt expense/other revenue?

[EntoineDurriE]

How do you find credit sales, it says substract sales from cash sales, but i can't find any of this in the income statement .
Is it gross profit x % of Bad debt expense ?

[weswirl]

Hey Bill, career path question. I’ve always heard 3-5 years in public before moving to industry. The issue I have is that my public experience is in government/non profit, will this be a barrier when making a transition to a for profit?