QuickBooks 2017 All-In-One For Dummies
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Business owners often find themselves confronting complexities. Luckily, QuickBooks has what you need. You don’t need to be an accountant or an experienced bookkeeper to understand the uncollectible accounts. Take a look.
Journal Entry 3: Recording an Allowance for Uncollectible Accounts
Account Debit Credit
Bad-debt expense $100
Allowance for uncollectible A/R $100
Journal Entry 3 records an estimate of the uncollectible portion of accounts receivable. (Businesses that don’t want to keep accrual-based accounting statements may not need to worry about Journal Entry 3.) Unfortunately, some of the money you bill customers may be uncollectible. Yet Journal Entry 1 records every dollar that you bill your customers as revenue. Therefore, you need a way to offset, or reduce, some of the sales revenue by the amount that ultimately turns out to be uncollectible.

Journal Entry 3 shows a common way of doing this. This entry debits bad-debt expense — which is an expense account that you may use to record uncollectible customer receivables. Journal Entry 3 also credits another account shown as allowance for uncollectible A/R. This allowance account is called a contra-asset account, which means that it basically reduces the balance reported on the balance sheet of an asset account. In the case of the allowance for uncollectible A/R accounts, for example, this $100 credit reduces the accounts receivable balance shown in the balance sheet by $100.

Where the bad-debt expense shown in Journal Entry 3 appears varies from business to business. Some businesses report the bad-debt expense with the other sales revenue, thereby allowing the income statement to show net sales revenue; other businesses report it with the other operating expenses. You should report bad-debt expense wherever it makes most sense in terms of managing your business.

QuickBooks doesn’t automatically record this transaction. You record estimates of bad-debt expense yourself by using the QuickBooks Make Journal Entries command.

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Stephen L. Nelson, MBA, CPA, is the bestselling author of more than 100 books on computer and business topics, including all the previous For Dummies books on Quicken.

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