Example Problem:

At the end of 2019, Jane Co has a Accounts Receivable balance of $100,000 and an allowance for doubtful accounts balance of $10,000. On Jan 15, 2020, they find out Bill Co will not be paying $1000. What is the journal entry for the write off?

(this is the same as above).

Second part: What is cash realizable value before and after the write off?

**YOU NEED TO KNOW WHAT CASH REALIZABLE VALUE** is.

A write-off affects only balance sheet accounts. Cash realizable value in the balance, therefore, remains the same before and after the write-off.

Bill Co has accounts receivable of $100,000. If Allowance for Doubtful Accounts has a credit balance of $1,000 in the trial balance and bad debts are expected to be 5% of accounts receivable, journalize the adjusting entry for the end of the period.

This is where we will use BAD DEBT EXPENSE. Remember, an expense is recorded with a DEBIT.

First thing here is to find 5% of Accounts Receivable. $100,000 x .05 = $5000. This is what is expected in the Allowance for Doubtful accounts. Since there already is $1000 in this account, you would subtract it from the 5000. 5000-1000=4000. This is the amount for the journal entry

Bad Debit Expense would be the Debit. Allowance for Doubtful Accounts would be the Credit

What if the balance in the Allowance for Doubtful Accounts had a debit balance of $1000? We need the balance in the Allowance for Doubtful Accounts after the adjusting entry to be $5000. A debit balance would take away from that amount. So in this case we would ADD $5000+$1000.

Bad Debt Expense would be the Debit. Allowance for Doubtful Accounts would be the credit.