Journal Entry Allowance For Doubtful Accounts

Journal Entry for Allowance for Doubtful Accounts

The allowance for doubtful accounts is a contra-asset account used to estimate the portion of accounts receivable that may not be collectible. This is done using the aging method or a percentage of sales method. Below is an example of how to record the allowance for doubtful accounts.

Scenario:

A company estimates that 5% of its ₹200,000 accounts receivable will be uncollectible.

Calculation: $\text{Estimated Uncollectible Amount} = \text{Accounts Receivable} \times \text{Estimated Percentage}$ $\text{Estimated Uncollectible Amount} = ₹200,000 \times 5\% = ₹10,000$

1. Recording the Allowance for Doubtful Accounts

Date	Particulars	Debit (₹)	Credit (₹)
2024-06-30	Bad Debt Expense A/c	10,000
	To Allowance for Doubtful Accounts A/c		10,000
	(Being provision made for doubtful accounts)

Explanation:

1. Bad Debt Expense A/c is debited to recognize the expense related to the estimated uncollectible accounts.
2. Allowance for Doubtful Accounts A/c is credited to set up the contra-asset account that reduces the accounts receivable on the balance sheet.

Writing Off Specific Accounts Receivable

When it becomes clear that a specific account receivable is uncollectible, it is written off against the allowance for doubtful accounts.

Scenario:

A customer with an account receivable of ₹3,000 is unable to pay, and the amount is written off.

2. Writing Off Uncollectible Accounts Receivable

Date	Particulars	Debit (₹)	Credit (₹)
2024-07-15	Allowance for Doubtful Accounts A/c	3,000
	To Accounts Receivable A/c		3,000
	(Being specific doubtful account written off)

Explanation:

1. Allowance for Doubtful Accounts A/c is debited to decrease the allowance account.
2. Accounts Receivable A/c is credited to remove the uncollectible account from the receivables.