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Terms and Definitions

Revenues are increases in owner's equity that a business generates by selling goods or providing services. When a business agrees to accept payment in the future for goods and services provided today, the claim against the customer is called an ______ and is recorded as a(n)______ on the balance sheet.

Understanding the Business Transaction

No matter how careful a company is in granting credit, some customers will not pay their accounts. That is, some accounts receivable will become uncollectible. The specific accounts receivable that will become uncollectible are ________ when credit is granted. At the end of the accounting period, the company must estimate the _______ that will become uncollectible.

Recording in the Accounting System

The operating expense used to record uncollectible accounts receivable is called _______.

The allowance method estimates the uncollectible accounts receivable at the end of the period, and records Bad Debt Expense ________. On the date the bad debt expense is recorded, the company _______ which customer accounts will be uncollectible. Therefore, the specific customer accounts _______ be decreased. The estimate of uncollectible accounts is recorded as a _______ to Allowance for Doubtful Accounts.

Teddy Company began operations on January 1, 20X1. The company has an accounts receivable balance of $376,100 at the end of its accounting period on December 31, 20X1. This balance includes some past due accounts. Based on industry averages, Teddy estimates that $24,900 of the December 31 accounts receivable will become uncollectible. At this time, Teddy Company ________ which customer accounts will become uncollectible.

The adjusting entry that Teddy Company should record for bad debt expense on December 31, 20X1 is:

12/31/X1 _____________ DR_________
_____________ CR__________

On the income statement, the Bad Debt Expense will be matched against _______. On the balance sheet, the Allowance for Doubtful Accounts will be _______ the balance in Accounts Receivable. This amount is called the _________ and represents the amount that the company ________ to collect on its accounts receivable.

Teddy Company's Accounts Receivable and Allowance for Doubtful Accounts on December 31, 20X1, before adjusting entries, are shown below. Update these T-accounts for the adjusting entry for Bad Debt Expense, showing the balance in Teddy Company's Accounts Receivable and Allowance for Doubtful Accounts after adjusting entries have been made.

Accounts Receivable
12/31/X1	$376,100
12/31/X1	________

Allowance for Doubtful Accounts
		1/1/X1	$0
		adjusting entry	______
		12/31/X1	______

Determine the amount of Bad Debt Expense that Teddy Company should report in its 20X1 income statement and the net realizable value of Teddy Company's Accounts Receivable after the adjusting entry is made on December 31, 20X1.

Income Statement:
Bad Debt Expense		$_______
Balance Sheet:
Accounts Receivable, Dec. 31, 20X1		$_______
Less: Allowance for Doubtful Accounts
Net Realizable Value of Accounts Receivable, Dec. 31, 20X1		$_______

At a(n) ________ point in the future, specific customer accounts will be determined to be uncollectible. At that point in time, the specific account receivable is written off by debiting ________ and crediting ________.

On January 12, 20X2, J. Thorleif's account balance of $5,530 with Teddy Company is determined to be uncollectible. Provide the journal entry to write-off J. Thorleif's account receivable on January 12, 20X2:

1/12/X2 ___________ DR__________
___________ CR__________

Teddy Company's Accounts Receivable and Allowance for Doubtful Accounts on December 31, 20X1, after adjusting and closing entries, are shown below. Update these T-accounts for the write-off of the J. Thorleif account receivable, showing the balance in Teddy Company's Accounts Receivable and Allowance for Doubtful Accounts immediately following the write-off.

Accounts Receivable
12/31/X1	_________
		1/12/X2	__________
1/12/X2	_________

Allowance for Doubtful Accounts
		12/31/X1	___________
1/12/X2	__________
		1/12/X2	___________