Answer:
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Step-by-step explanation:
Balance sheet approach to bad debts:
Using this approach means that when the company sells good or renders a service, it does so on credit. This means that clients receive goods or the service being rendered, but they pay at a later date. This is recorded under accounts receivable (an account to record all clients that purchased goods on credit). At certain times, some of the clients that purchased goods on credit fail to settle the debt on those goods. In such cases the company has to write off that amount as a bad debt expense so as to remove it, as it highly likely that it will not be recovered. The contra-account for bad debt is ‘allowance for bad debt’ which reduces the balance of accounts receivables. It gives the true reflection of the account receivables balance.
It does, however, that amounts that were previously written off as bad debts, are recovered. In that instance we have to reduce the allowance for bad debts and reverse the bad debt expense by recording an income called ‘bad debts recovered’.
Date Account Dr Cr
31/12/2010 Bad debt Expense $800
Allowance for bad debts $800
Bad debt expense recorded
03/01/2011 Bad debts expense $60
Allowance for bad debts $60
Bad debt expense recorded
04/03/2011 Bad debts expense $75
Allowance for bad debts $75
Bad debt expense recorded
05/07/2011 Allowance for bad debts $45
Bad debts recovered $45
Bad debts recovered recorded
19/08/2011 Bad debts expense $100 Allowance for bad debts $100
Bad debt expense recorded
07/11/2011 Allowance for bad debts $25
Bad debts recovered $25
Recording bad debts recovered