Bad Debt Expense

This account reconciliation is an Expense account type and a List reconciliation type. This type of reconciliation allows you to make a list of the amounts that make up the account balance.

The Description shown above tells you what should be recorded in this account. The Company Policy states that there should be an accrual for Bad Debt Expense every month equal to 0.5% of monthly sales. As you will see below, the monthly accrual entry is recorded in the reconciliation and any additional amounts related to large customer write-offs are entered separately.

Below is the reconciliation for this account for the month ended 12/31/2011.

Below is the Reconciling Item for the 8/31/2010 entry for the Dolphin Corp write off. You can see that the controller has added some extra information about why the receivable was not collected and that the company is proceeding with legal action to try and collect from Dolphin.

Remember that the Company Policy is always the MINIMUM that you have to do. Use good judgment and common sense to determine when a little bit more effort will give you much greater returns.

This item has an Open Date of 8/31/2010 and a Close Date of 1/1/2011. In all the other reconciliations so far we have always advised you to wait until the next accounting period to put in a Close Date so you can make sure the item actually cleared through the general ledger properly. Because this is an Income Statement account (as you recall this is an Expense account that is part of the Income Statement, not the Balance Sheet) the way you use the Close Date is slightly different.

The amounts in this Expense account accumulate throughout the year and then - as if by magic - an end of the year entry is made that wipes out the balance and starts over at zero for the new year. This also happens with all the Income accounts.

When we put an item into an Expense account reconciliation we already know that the corporate accounting department will make it go away on the first day of the new year. (Actually, it's on the last day of the old year, but we still want it to show up on the end of the year reconciliation. The only way to make it disappear in the new year is to give it a Close Date in the new year - such as 1/1/2011 as we have done here).

The month end report is shown here:

This particular account is reconciled with no Unidentified Difference.

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