Allowance For Doubtful Accounts Explained with Examples
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- čas přidán 6. 09. 2024
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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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I'm a student of ICAI (Chartered Accountant India) and I must admit your videos are really
insightful!!
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?
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.
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.
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 ❤
Excellent!
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.
Bill’s impact in real time. He makes FP&A folks dangerous with accounting. ✊🏾
ASC 326 says its called allowance for credit loss now "CECL". Allowance for doubtful accounts is no more.
Are you sure about that? Doesn't CECL (current expected credit loss) apply only to financial assets e.g. loans, leases?
@@martysonn no it also applies to trade receivables. Its basically the same thing though they just changed the name from allowance for doubtful accounts to allowance for credit losses though lol. The standard for estimating the amount of the allowance also changed a bit also as your "supposed" to take future forecasts of collectability into account instead of just the historical/current conditions.
@@GnarshredProductions Thank you. English is my third language so I'm just starting to get into this terminology.
Really helps a lot about bad debt.
Especially for Account receivable department
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
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.
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
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.
Hi, Can you tell me what is gonna be the entry if they paid me in cash after making the Doubtful debt entry
You are awesome. This helped me understand allowance for doubtful accounts and bad debt expense. Thank you very much!
Happy to help!
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?
good point, you should do it in the sub-ledger via invoice write-off feature in your ERP software
👍
@@TheFinancialController Thank you. The ERP Software(we use EHR electronic health care record Software) doesnt have the invoice write off feature, the regular cash receipt is mapped to a bank account, the only option left is create a credit memo using the bill code that maps to allowance write off GL account, then net the credit and debit invoice to clear it out of the balance from the aging. (Depending on the features jn the software you use) Agree?
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?
Thank you so much
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?
Your Dr is correct as it would setoff liab, Cr should be Revaluation account as bad debts are exp
Keep up the great work man..
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 ?
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?
Yes
You should try to get some for profit experience in audit
Nice job
Thank you! Cheers!
How about the adotpion of CECL?
🔥🔥🔥
Account Dracula... 🦇 📈
lol
Hi Bill, would your controller course be useful for an accountant wanting to become a FC in the UK?
Yes, I actually have many students in my course from the UK
@@TheFinancialControllerthank you for responding.
How is FUND Accountant as a career.
It’s a good career track, leads to fund controller
I want in my brother you reply okay my brother animal