[YL84]

Hello everyone,

I am in need of advice. Here is my current situation. I need help at work. I have been looking online but I couldn’t find anything. We booked estimated Bad Debt Expense in December 2017 as followed.

Dr. Bad Debt Expense 3,000
Cr. Allowance for Bad Debt 3,000

Now, we roll up into the new year 2018 and there has been no bad debt expense. The bad debt expense account is now $0. If we want to reverse last year bad debt expense because it can be recovered, do I book a credit to Bad Debt Expense?

Dr. Allowance for Bad Debt 3,000
Cr. Bad Debt Expense 3,000

However, by booking this JE, it means that my Bad Debt Expense account has a credit balance. It doesn’t look right on the income statement to have a negative bad debt expense. Could anyone help me with this JE? My boss wants me to provide an answer in the next 2 days. Please help. I appreciate if you could provide me the source online since I need to show to my boss how I come up with this answer.

THANK YOU SO MUCH!

[Devo71017]

Don’t be too concerned about bad debt expense. What matters is that the allowance for doubtful accounts is related to the A/R balance. If the related A/R is still in the balance sheet, then the allowance should still be there. In essence, the reversal should be between the two balance sheet accounts. Otherwise, crediting bad debt expense would create a “revenue” already recognized in 2017.

Just pretend in 2017 A/R was 3,000, and allowance was 3,000. The offsets would have been 3,000 sales and bad debt expense.

It all depends on what happened to the associated A/R balances.

[Author]

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