On June 30 of the next year, Jarden concludes that a customer’s $5,350 receivable is uncollectible and the account is written off. Does this write-off directly affect Jarden's net income?
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
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On December 31, Jarden Company's Allowance for Doubtful Accounts has an unadjusted credit balance of $14,500. Jarden prepares a schedule of its December 31
| Accounts Receivable | Age of Accounts Receivable | Expected Percent Uncollectible |
|---|---|---|
| $ 820,000 | Not yet due | 1.25% |
| 328,000 | 1 to 30 days past due | 2.00 |
| 65,600 | 31 to 60 days past due | 6.50 |
| 32,800 | 61 to 90 days past due | 32.75 |
| 13,120 | Over 90 days past due | 68.00 |
3. On June 30 of the next year, Jarden concludes that a customer’s $5,350 receivable is uncollectible and the account is written off. Does this write-off directly affect Jarden's net income?
There are two methods used for recording uncollectible which is direct write-off method or provision method. In direct write-off method, company would recognize bad debt expense when company feels that amount would not be collectible from customer while in provision method company would record bad debt expense each year based on certain percentage of sales or accounts receivable.
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