Do you extend credit to your customers? If so, do you have any accounts receivable at year end that you know are uncollectable? If you do, the end of the year is a good time to make an adjusting entry in your general journal to write off any worthless accounts.
|Bad debt expense||750|
|To record bad debts for the year ended 12/31/2001|
|Be sure to write off this account in your accounts receivable ledger, so that it agrees with your general ledger.|
If you extend credit to numerous customers, and your experience is that a certain amount of your sales on account will be uncollectable, you should probably set up a reserve for bad debts. That way, your books and financial statements will more accurately reflect your true financial picture. At the end of every year, you should evaluate your accounts receivable and adjust your allowance for bad debts accordingly. Your accountant may be able to help you do this.
|Bad debt expense||200|
|Allowance for bad debts||200|
|To adjust allowance for uncollectable accounts at 12/31/2001|
For what to do if you've written off a bad debt, but the customer later pays
some or all of what he owes, see bad