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Company A has the following transaction related to their bad debt during the year of 2020: Jan 1: AR balance is $100,000, estimated bad debt is 5% Mar 2: Customer A went bankrupt and unable to pay $1,000 If the company using Allowance method, what is the balance of bad debt expense account at Jan 1st
Company A has the following transaction related to their bad debt during the year of 2020:
Jan 1: AR balance is $100,000, estimated bad debt is 5%
Mar 2: Customer A went bankrupt and unable to pay $1,000
If the company using Allowance method, what is the balance of bad debt expense account at Jan 1st
Expert Solution
As u said the estimated bad debts on 1st January is 5% of $100000 so we have to write off firstly $5000 on 1st January and after that the actual loss is $1000 incured in March so as per Prudence Concept we wil anticipate our Losses first so the loss amount/Provision on Bad debt made on 1st January is $5000 and on 2nd march we will write off $1000 from the provision earlier made
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