340 Allowance for Doubtful Accounts
Liabilities
Contra Assets
Synopsis
Account 340 is established to record the reserve for bad debts.
Debits |
Credits |
|
|
Example 1
Record the adjustment $4,409 which is necessary to establish the allowance for customer receivables over 90 days past due. The bad debt expense is pro-rated to each department as shown in the example below.
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 |
Comments
A credit balance represents the provision for possible losses on uncollectible customer notes and accounts receivable. All receivables should be aged and collection efforts should be intensified, as debts get older. Professional advice should be obtained regarding items that remain uncollectible and the tax deduction status of accounts being written off.