POSSIBLE EVENTS JOURNAL ENTRIES

1. Sale/service completed 1. DR accounts receivable, CR revenues

2. Following alternatively can happen. 2.
(A) (explained in the book) Collect the amount (A) DR Cash (+A), CR Accounts receivables (-A)
(B) (explained in the book) At year end, you think someone (B)
is not going to pay the amount due in next accounting
period
I. At year end, it is estimated the amount of bad debts I. DR Bad Debt Expense (+ Exp)
which will not be collected: this is to be respectful of CR Allowance on doubtful accounts (+XA)
the expense recognition principle (expenses are
recorded in the same accounting period in which the
related sales are made). [TWO POSSIBLE
METHODS]
II. in the subsequent year, you write off specific II. DR Allowance on doubtful accounts (-XA)
accounts determined to be uncollectible CR Accounts receivables (-A) REV
III.DR Accounts receivables (+A)
III. IF, after a number of years, you collect them, then CR Allowance on doubtful accounts (+XA)
you have to reverse the precedent estimate DR Cash (+ A)
CR Accounts receivables (-A)

(C) (not explained in the book) during the year you have (C) DR Bad Debt Expense (+ Exp)
certainty that the account receivable will never be
CR Accounts receivable (-A)
collected
 Bad Debt Expense – % credit sales method
• (see page 302) you compute the amount to be recorded as Bad Debt
Expense on the income statement.
• Computation is:
First, compute historical bad debt loss rate («BDLR»)
Then, multiply the BDLR times the credit sales of the year.

Leclerc LTD is a wholesaler. At beginning of the year, Leclerc LTD has a € 18.000 CR balance of the «allowance for
doubtful accounts».
Then, on September 26 a € 11.900 receivable from a prior year is determined to be uncollectible.
At the end of the period, Leclerc LTD reports the following information:
• Based on the past experience, the company has a 0,5% bad debt loss rate
• Total sales revenues are € 2.000.000 of which 1.200.000 are credit sales
• At the end of the period, outstanding receivables are € 400.000, of which € 100.000 overdue. The company uses to
apply a 1% bad debt rate on not yet overdue receivables and an 8% bad debt rate on overdue receivables.
Bad Debt Expense – aging of accounts receivable
• (see page 302) you compute the amount to be recorded as ending balance of
the «allowance for doubtful accounts» on the balance sheet.
• After that, as (i) you computed the desired ending balance, and (ii) you have in
the T-Account the balance prior the adjustment, bad debt expense is computed
as difference.
• Computation is:
Multiply the outstanding accounts receivables, which are classified according the ageing
category of the company, times the estimated % bad debt loss rate for each category.

Leclerc LTD is a wholesaler. At beginning of the year, Leclerc LTD has a € 18.000 CR balance of the «allowance for doubtful
accounts».
Then, on September 26 a € 11.900 receivable from a prior year is determined to be uncollectible.
At the end of the period, Leclerc LTD reports the following information:
• Based on the past experience, the company has a 0,5% bad debt loss rate
• Total sales revenues are € 2.000.000 of which 1.200.000 are credit sales
• At the end of the period, outstanding receivables are € 400.000, of which € 100.000 overdue. The company uses to apply
a 1% bad debt rate on not yet overdue receivables and an 8% bad debt rate on overdue receivables.