bookkeeping tips - aipb（记账技巧u2014u2014aipb）.pdf

Bookkeeping Tips The American Institute of Professional Bookkeepers () VOL. 3: Issue 6 Recording Bad Debt Expense For Tax v. Book Purposes For tax purposes: The direct write-off method. Under the direct write-off method, which is required by the IRS for income tax purposes, bad debt expense is taken when the company determines that an accounts receivable cannot be collected. (This method cannot be used for book purposes under generally accepted accounting principles.) Very small companies sometimes use this method for both tax and book purposes. For book purposes: The allowance method. Under this method, which is required by GAAP, there are two ways to estimate bad debt expense: 1. As a percentage of credit sales. Under the percentage of credit sales method, at year end, management estimates the percentage of credit sales that it may not collect. This estimate is recorded as follows: Bad Debt Expense Allowance For Doubtful Accounts Example 1: Bad debt as a percentage of credit sales. For 20X5, SimCo has credit sales of $200,000. Based on past experience, the company estimates that bad debt loss for the year will be 2% of credit sales. SimCo records its bad debt loss for book purposes (as opposed to tax purposes) for the year as follows: Bad Debt Expense 4,000 Allowance For Doubtful Accounts 4,000 To record bad debt expense At the end of each year (or other period), SimCo will record its estimate of bad debt with a debit to Bad Debt Expense and a credit to Allowance For Doubtful Accounts. 2. As a percentage of accounts receivable. This estimate is based on aging receivables (those receivables far enough past due that management now considers payment doubtful). Whatever the dollar amount, it must become the ending balance in the Allowance For Doubtful Accounts. Thus, recording bad debt expense under the percentage of accounts receivable method req