The document discusses bad debts in accounting, defining them as amounts that cannot be collected from debtors and detailing their impact on a company's credit policy. It explains the process of recognizing bad debt expenses and presents methods for estimating uncollectible accounts, including the income statement approach and the balance sheet approach. Additionally, it provides examples of relevant journal entries and balance sheet presentations.

1. ClassClass BBA (A)BBA (A)
Group memberGroup member Muhammad Ishfaq 83Muhammad Ishfaq 83 Asim Javed 04Asim Javed 04
Abdus Samad Hashmi 93Abdus Samad Hashmi 93 Zahid Iqbal 84Zahid Iqbal 84
Arshia Abbas 89Arshia Abbas 89 Muniba Gul 94Muniba Gul 94
Sana Tariq 47Sana Tariq 47
Assignment
On
AccOunting

2. Bad DebtsBad Debts
Definition:
The amount, which cannot be
recovered from the debtors are called
bad debts
Debts that come from credit customers
who do not pay their bills
Affects a company’s credit policy

3. Bad DebtsBad Debts
On December 1, 2008, Corey Co. sold
merchandise on account for $5,000.
On July 1, 2009, Corey Co. determines that the
$5,000 will never be collected.
Dec 1
Sales of
$5,000
recorded
2008 2009
Dec 31
End of
fiscal
year
Jul 1
Debt
determined
to be bad

4. Bad DebtsBad Debts
Bad debts expense should be recognized in
the accounting period in which the sales
were made.
Dec 1
Sales of
$5,000
recorded
2008 2009
Dec 31
End of
fiscal
year
Jul 1
Debt
determined
to be bad

5. Bad DebtsBad Debts
Solution: Estimate how many of the current
sales will be uncollectible
Dec 1
Sales of
$5,000
recorded
2008 2009
Dec 31
End of
fiscal
year
Jul 1
Debt
determined
to be bad
Prepare an
adjusting entry

6. Doubtful AccountsDoubtful Accounts
Is a contra account
Is subtracted from accounts receivable
Accumulates expected amount of
uncollectible as of a given date

7. Adjusting Entry for Bad DebtsAdjusting Entry for Bad Debts
General Journal
Date Account Titles and
Description
PR Dr. Cr.
Debtor’s account
Dec 31 Bad Debts Expense XXXX
Allowance for Doubtful Accounts/ XXXX

8. Balance Sheet PresentationBalance Sheet Presentation
Current Assets:
Cash $ 10,400
Accounts receivable $100,000
Less: Allowance for
doubtful accounts 6,000 94,000
Merchandise inventory 300,000
Total current assets $404,400
Corbin CompanyCorbin Company
Partial Balance SheetPartial Balance Sheet
December 31, 2008December 31, 2008Gross
Amount
Estimated to
be
Uncollectible
Net
Realizable
Value
Total Current
Assets

9. Net RealizableValueNet RealizableValue
• The amount of Accounts Receivable that
is expected to be collected
• Calculated by subtracting Allowance for
Doubtful Accounts from Accounts
Receivable

10. Income Statement ApproachIncome Statement Approach
Using the income statement approach and
the balance sheet approach to estimate
the amount of Bad Debts Expense

11. Estimating the AmountEstimating the Amount
General Journal
Date Account Titles and
Description
PR Dr. Cr.
Dec 31 Bad Debts Expense XXXX
Allowance for Doubtful
Accounts XXXX
How is this
amount
determined?

12. Income Statement ApproachIncome Statement Approach
Bad Debts Expense =
Percentage of net credit sales

13. Compute Net Sales:
Credit Sales $110,000
Sales Returns & Allowances (500)
Sales Discounts (9,500)
Net credit Sales $100,000

15. General Journal
Date Account Titles and
Description
PR Dr. Cr.
Dec 31 Bad Debts Expense 4,000
Allowance for Doubtful
Accounts 4,000

16. Accounts Receivable
Bal. 30,000
Allowance for
Doubtful Accounts
5,000
4,000 Adj.
$9,000 Bal.
Any existing balance in theAny existing balance in the
Allowance account is ignored.Allowance account is ignored.

17. Balance Sheet ApproachBalance Sheet Approach
 Bad debts is based on the Accounts Receivable amount.

18. Balance Sheet ApproachBalance Sheet Approach
 Net realizable value - The amount (accounts receivable
– Allowance for doubtful accounts) that is expected to
be collected.
Focus is on determining the
net realizable value of
Accounts Receivable, which
is reported on Balance Sheet

19. Thank you!