Example to explain and analyse the allowance for doubtful debt.
Aspring has accounts receivable of $11,200 at his year end of 31 May 20X9. Of these he decides that there is some doubt as to whether or not he will receive a sum of $500 from B and he also wishes to allow for the possibility of not receiving 2% of his remaining receivables.
At 1 June 20X9 Aspring had a balance on his allowance for doubtful debts account of $230.
Solution:
Step1
Calcuate the allowance for doubtful debts required at 31 May 20X9.
Step2
Write up the allowance for doubtful debts account, putting in the opening balance of $230 and the closing balance required of $714. The difference is the expense to the bad debts expense account and subsequently to the income statement.
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