If an account becomes uncollectible in 2011, arising from a sale made in 2010, in what...
If an account becomes uncollectible in 2011, arising from a sale made in 2010, in what year is it expensed?
please explain.
Homework Answers
Solution:
If direct write method is used for accounting for bad debts then bad debts expense will be recorded in the year in which accounts becomes uncollectible. Therefore in this situation expense will be recorded in 2011.
If allowance method is used, then bad debts expense is estimated and recorded as a percentage of sale/accounts receivables every year. When accounts actually becomes uncollectible, it will be written off against allowance account. In this situation, we are estimating bad debts every year and expense is recorded in the year of sale as a provision.
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