What is the accounting procedure for Bad debts

Question

Accepted Answer

Bad debts are recorded as an expense in the income statement and as a reduction in accounts receivable in the balance sheet.

Bad debts are debts that are unlikely to be collected from customers.
The accounting procedure for bad debts involves estimating the amount of bad debts and recording them as an expense in the income statement.
The allowance method is commonly used to estimate bad debts.
Under the allowance method, a percentage of accounts receivable is estimated to be uncollectible and recorded as an expense.
The bad debt expense is then matched with the revenue earned in the same period.
The amount of bad debts is also recorded as a reduction in accounts receivable in the balance sheet.
If a bad debt is later recovered, it is recorded as a reduction in bad debt expense and an increase in accounts receivable.
If the estimate of bad debts is incorrect, adjustments can be made in future periods.
The accounting procedure for bad debts is important for accurately reflecting the financial position of a company.

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