340 - Allowance for Doubtful Accounts

Current Assets

Receivables

Synopsis

Account 340

Remarks:

The balance in this account should be established and adjusted (debit or credit) each month-end to equal the total of the following:

• Service, parts and vehicle receivables over 90 days past due.

• Service, parts and vehicle receivables construed to be worthless, regardless of their age (this category should include customer checks returned by the bank, debtors who have gone out of business, etc.);

• All other notes over 90 days past due, or otherwise construed to be worthless, regardless of their age; and

• All employee account balances over 90 days past due, or whose services have been terminated.

The balance may also be established and adjusted at each month-end on a basis determined by past experience.

The offsetting entry for the Allowance for Doubtful Accounts should be made to Bad Debt Expense (Account 69).

Where accounts are collected by a credit and collection agency, the portion of the account that is retained by such agency should be charged to Outside Services Expense (Account 68).  The total amount collected should be credited to the individual’s receivable account.

All receivables charged off as being uncollectible (actually written off) should be removed from the subsidiary ledger and retained in a Bad Debt file for future reference.  Accounts written off as bad debts should be properly documented detailing the collection effort and the reasons for declaring the debt uncollectible.

Proper approval should be obtained on all uncollectible accounts prior to their write-off.

Proper credit investigation and approval processes within the retailer prior to granting of credit will minimize bad debt losses.

Note: