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Accounting for Bad Debts - Direct Write-Off Method

Learn about the concept of bad debts, methods of handling uncollectible accounts, and how to apply the direct write-off method for bad debt.

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Accounting for Bad Debts - Direct Write-Off Method

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  1. Chapter 6 Accounting for bad debts -Direct write off method March 2019 ACC 804

  2. Lesson Objectives • Recognize the concept of bad debt • Identify methods of uncollectible accounts (bad debts) • Apply bad debt for direct write-off method

  3. Cards Game Write Off Bad Debt Uncollectible Can Not Pay

  4. Bad Debt Definition When a company directly grants credit to its customers, it expects that some customers will not pay what they promised. The accounts of these customers are uncollectible accounts and called Bad Debts

  5. Choose the correct answer 1. what is Bad Debt: • Amount owed to a creditor that is unlikely to be paid • Error in process of perform service • Amount to be received by customer • Customer payment of the service

  6. Lesson Objectives • Recognize the concept of bad debt • Identify methods of uncollectible accounts (bad debts) • Apply bad debt for direct write-off method

  7. Methods of Uncollectible Accounts (Bad Debts) Allowance Direct Write Off

  8. Choose the correct answer • 1. What are the two methods of uncollectible accounts (bad debts)? (a) Declining and Straight Line (b) Accrual And Cash Basis (c) Direct Write Off and Allowance (d) Aging and Credit Sales

  9. Lesson Objectives • Recognize the concept of bad debt • Identify methods of uncollectible accounts (bad debts) • Apply bad debt for direct write-off method

  10. Direct Write Off (Example) • On 10, January, 2018, Bahrain Co. provide Service to Ahmed for BD 900 on Credit Key Words: Provide Service Perform Service On Account On Credit Account Receivable (Ahmed) • 900 10,Jaunary 2018 • 900 Service Revenue

  11. Direct Write Off (Example) continue…. • On 20, February2018, Ahmed Could not pay BD 400 and his balance should be write off by Bahrain Co. because he went bankrupt. Key Words: Can not Pay Could not Pay Write-Off Bankrupt Uncollectible Worthless Useless • 400 Bad Debt Expense • 20, February • 2018 • 400 Account Receivable (Ahmed)

  12. Direct Write Off (Example) continue…. • On 7, April 2018, Ahmed won money and paid his balance due to Bahrain Co. Key Words: Won Money Paid Collect Win a Lottery Account Receivable (Ahmed) • 400 • 7,April • 2018 • 400 Bad Debt Expense • 400 • 7,April • 2018 Cash • 400 Account Receivable (Ahmed)

  13. Question 1: Ali Co. had the following transaction involving the bad debt: • May 6, 2010Jassim was written off as bad debts of BD350 because he got bankrupt. • Oct 20, 2010Jassim won an amount of money and decided to pay the amount due. • Required: Show the journal entries.

  14. Question 1: (Check Your Answer) • 350 Bad Debt Expense 6,May 2010 • 350 Account Receivable (Jassim) • 350 Account Receivable (Jassim) 20,Oct 2010 Bad Debt Expense • 350 • 350 20,Oct 2010 Cash • 350 Account Receivable (Jassim)

  15. Choose the correct answer • 2. The entry to record Direct write off for the debtors account is (a) Dr. Accounts Receivable Cr. Service revenue (b) Dr. Accounts Receivable Cr. Provision for bad debts (c) Dr. Bad debts expense Cr. Accounts Receivable (d) Dr. Provision for bad debts Cr. Accounts Receivable

  16. Lesson Objectives • Recognize the concept of bad debt • Identify methods of uncollectible accounts (bad debts) • Apply bad debt for direct write-off method

  17. Challenge Question • ALBA has total account receivable BD 8000 at 31 Dec 2010. One of the debtors can’t pay their balance of BD 500 • Required: show the effect on Balance sheet.

  18. Challenge Question Answer ALBA Balance Sheet 31st Dec 2010 Current Assets 7500 Account Receivable

  19. Conclusion Choose the correct answer and check your answer with Zip-Grade

  20. Conclusion Choose the correct answer and check your answer with Zip-Grade

  21. Conclusion Write a tweet message about the main ideas that you learnt in today the lesson

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