Bad Debt Expense - Chi phí nợ khó đòi is an expense resulting from uncollectible accounts receivable. These expenses are estimated and recorded to match revenue and expense in the month of sale. This entry should be done so that the income statement and balance sheet are fairly stated at the amount expected to be collected in receivables satisfying the matching principlei. The entry creates a contra accounts receivable balance. When netted against the gross total of accounts receivable, the true value of the receivables is reported.
ASOP: Bad Debt can be recorded via the allowance method, or the direct method.
Allowance Method - Phương pháp dự phòng The allowance for bad debt - Dự Phòng phải thu khó đòi measures receivables not expected to be collected. Often, it is not known which accounts receivable will be uncollectible, so the allowance account is used instead of accounts receivable. On the balance sheet the allowance is a deduction from accounts receivable and is considered a contra asset. To estimate the amount of bad debt to accrue into the allowance each period, the following is one acceptable method. Step 1: Use the actual write-off amount of the previous year and divide it by total credit sales in the same year. Example: Total write-off for 1993-94 = $4,679.08 Volume of charges 1993-94 = $251,166.98 Last year's write-off % = 1.86%
Note: Last year's write-off % becomes the estimated allowance %.
Step 2: Multiply this percentage by the credit sales in a reporting period to find the amount for the same period's bad debt entry.
Example: Credit sales in October = $28,548.71 Estimated Allowance % = .0186 October bad debt expense = $531.00
Integrating the entire example, the correct entry is as follows:
Debit - Bad Debt Expense $531.00 Credit - Allowance for Bad Debt $531.00
To record the actual write-off, the following method is acceptable. When the write-off in a fiscal year is known, an actual invoice must be eliminated from the detail of accounts receivable. A debit (decrease) to allowance for bad debt and a credit (decrease) to accounts receivable must be made so the receivables balance is decreased appropriately. Actual write-off entry:
Example: Invoices that have been determined to be uncollectible C.J. Cox Company $3,120.00 Gossic Sales $1,453.00 Perry Incorporated $1,559.00 Total $6,132.00
The entry made when the invoices are determined to be uncollectible is:
Debit - Allow. for Bad Debt $6,132.00 Credit - Accounts Receivable $6,132.00
In some cases, the Allowance for Bad Debt might be significantly higher or lower than the actual amount of uncollectible invoices. In This case, adjustments must be made to the Allowance account so a fair representation of uncollectibles is shown.
Example: Allowance for Bad Debt $100,000 Estimated future uncollectible invoices $25,000 If $100,000 was in the Allowance for Bad Debt, and only $25,000 of Accounts Receivable was estimated to be uncollectible in the future, the allowance is unfairly representative of your future estimated uncollectible accounts. In this case, a reduction to the allowance for Bad Debt and Bad Debt Expense is necessary.
AVAD Debit - Allowance for Bad Debt $75,000.00 Credit - Bad Debt Expense $75,000.00
Example: Allowance for Bad Debt $25,000 Estimated future uncollectible invoices $45,000 If $25,000 was in the Allowance for Bade Debt, and $45,000 of Accounts Receivable was estimated to be uncollectible in the future, the allowance is unfairly representative of your future estimated uncollectible accounts. In this case, an increase to the Allowance for Bad Debt and Bad Debt Expense is necessary.
Debit - Bad Debt Expense $20,000.00 Credit - Allow. for Bad Debt $20,000.00
Direct Method - Phương pháp trực tiếp The direct method writes off an invoice directly to Accounts Receivable when it is deemed to be uncollectible. an allowance is not set up to estimate any future uncollectibles that occurred in the month of sale. the direct method does not conform to the matching principle and therefore is not in compliance with GAAP. The direct method should only be used when uncollectible invoices can be estimated to be an immaterial amount. Example: Unpaid accounts receivable over 2 years old for the amount of $4,679.08. Entry: To write-off an uncollectible invoice
Theo Kế toán Mỹ, allowance là một khoản dự phòng rủi ro trong trường hợp bạn không thu hồi được nợ, thì khoản trích trước này dùng để bù vào khoản thiếu không thu hồi được đó, thông thường khoản dự phòng được trích trước từ revenue, khoản trích trước bao nhiêu % phụ thuộc vào past due, khi xảy ra rủi ro thật sự thì xóa sổ (write off). Liên quan đến các TK allowance,allowance expense, Account receivable và cash.
Trong F3/ACCA : allowance for receivables( irrecoverable debt) : Dùng để chỉ dự phòng cho những khoản nợ xấu không thu hồi được trong tương lai( được lập tại cuối mỗi năm). provision: thường là dự phòng cho những hợp đồng có rủi ro lớn, hay dự phòng về chi phí bảo hành,...