057 Bad Debt Expense

Expenses

Semi-Fixed

Synopsis

The monthly adjustment for receivable accounts, which are past due and considered a “Bad Debt”, is recorded in Account 057, Bad Debt Expense. Professional tax and accounting advice should be obtained regarding the proper handling of past due accounts and the related write-offs.

Debits

Credits

Monthly adjustments to increase the balance of Account 340, Allowance for Doubtful Accounts to equal past due customer Receivables over 90 days past due
Direct write-offs of accounts determined to be uncollectible

Monthly adjustments to decrease the balance of Account 340, Allowance for Doubtful Accounts to equal past due customer Receivables

Example 1

Record the adjustment of $4,409 necessary to establish the allowance for customer receivables over 90 days past due.

Journal: Standard Entries Journal

Entry:		Debit	Credit
Account 057-01	Bad Debt Expense – New Vehicle Department	$1,500
Account 057-02	Bad Debt Expense – Used Vehicle Department	$750
Account 057-05	Bad Debt Expense – Mechanical Department	$685
Account 057-06	Bad Debt Expense – Body Shop Department	$1,250
Account 057-07	Bad Debt Expense – Parts & Accessories Department	$224
Account 340	Allowance for Doubtful Accounts		$4,409

Distribution of Expenses

	Departmental Distribution
057 Bad Debt Expense	New Veh.	Used Veh.	Lease & Rental	Mechanical	Body Shop	Parts & Access.	Gen & Admin.
	01	02	03	05	06	07	09
Monthly Adjustment	Amount of adjustment	Amount of adjustment	Amount of adjustment	Amount of adjustment	Amount of adjustment	Amount of adjustment	Amount of adjustment

Comments

As some receivables go unpaid and become past due, the likelihood of some customers paying the amount owed decreases. After a certain time, some accounts can be deemed uncollectible. Professional tax and accounting advice should be obtained about how aged receivables can be classified as “Bad Debts” and “written off” as an expense. Account 340, Allowance for Doubtful Accounts is a reserve account for the “Bad Debts”. As accounts become over-aged, or as accounts are deemed uncollectible, Account 340, Allowance for Doubtful Accounts is credited (thereby increasing the amount of the reserve balance) and Account 057, Bad Debt Expense is debited.

Note:

In spite of the fact that a Past Due Receivable is “written off” as a Bad Debt, collection efforts should continue. In some cases, turning Bad Debts over to a collection agency may be the best choice. As a further note, the fees paid to a collection agency should be debited to Account 069, Outside Services - (Other).

Departmental Distribution