JE-131 Mar 2026Adjustingposted
Top the allowance up to the required balance.
| Account | Dimensions | Debit | Credit |
|---|---|---|---|
| 6600 Credit loss expense | 5,200 US Dollar | ||
| 1110 Allowance for credit losses | 5,200 US Dollar | ||
| Totals | 5,200 US Dollar | 5,200 US Dollar | |
Balanced.
Journal entry for bad debt expense
Under the allowance method, at each period-end debit Credit loss expense (bad debt expense) and credit Allowance for credit losses for the amount needed to bring the allowance to the expected loss on open receivables.
- Required allowance
- $7,700
- Allowance already held
- $2,500
- Credit loss expense
- $5,200
- Entity
- Illustrative company
- Basis
- Accrual
- Currency
- USD
- Period
- Quarter ended March 31, 2026
The worked example
At March 31 the company has $128,000 of open receivables. Loss rates by aging bucket require an allowance of $7,700; it already holds $2,500, so the quarter's expense is $5,200 and net receivables are $120,300.
Adjusting entry · March 31, 2026
Expected credit loss by aging bucket
Computed by the same tested function the toolbelt runs. The last period absorbs any rounding, so the schedule sums to the cent.
| Bucket | Balance | Loss rate | Expected loss |
|---|---|---|---|
| Current | 80,000.00 | 1% | 800.00 |
| 1–30 days past due | 30,000.00 | 5% | 1,500.00 |
| 31–90 days past due | 12,000.00 | 20% | 2,400.00 |
| Over 90 days | 6,000.00 | 50% | 3,000.00 |
What the entries do to the accounts
Every entry above posted to the ledger, starting from zero balances: the net debit or credit each account is left with. Debits equal credits, so the books still balance.
| Account | Debit | Credit |
|---|---|---|
| 1110 Allowance for credit losses | 5,200 US Dollar | |
| 6600 Credit loss expense | 5,200 US Dollar | |
| Totals | 5,200 US Dollar | 5,200 US Dollar |
Why it is booked this way
Receivables are reported at what the company expects to collect. The allowance is a contra-asset that holds the expected loss; net receivables are the gross balance less the allowance.
The entry is the change. If the allowance already holds part of the required amount, only the difference is expensed — and if collections improved, the entry runs the other way and releases some.
Common mistakes
- Booking the required allowance as the expense, instead of the change needed to reach it.
- Applying one blended rate to all receivables, so a growing pile of old invoices barely moves the allowance.
- Writing off individual invoices to expense while also carrying an allowance — the loss is counted twice.
Questions
- Allowance method or direct write-off?
- The direct write-off method expenses a debt only when it is written off. US GAAP requires an allowance for expected credit losses (ASC 326, CECL), so the direct method is acceptable only when the difference is immaterial — or for tax, where it is the required method.
- How do I estimate the allowance?
- Apply a loss rate to each aging bucket, built from the company's own collection history adjusted for current conditions and reasonable forecasts. Older buckets carry higher rates.
Terms on this page
Work with this entry
The tool that computes the schedule, the concept behind it, the entries that come next and the components that render them.
- Allowance for credit losses, explained for foundersAn estimate of the receivables you don't expect to collect, booked against receivables before any customer actually defaults. GAAP calls the model CECL: current expected credit losses.Doc
- Bad debt expense vs write-offBad debt expense is the cost of expected credit losses booked when the allowance is built; a write-off removes a specific invoice from receivables against that allowance and does not touch the P&L.Compare
- Journal entry for writing off accounts receivableTo write off an uncollectible invoice under the allowance method, debit Allowance for credit losses and credit Accounts receivable. If the customer later pays, reinstate the receivable (debit Accounts receivable, credit Allowance) and record the cash.Entry
- Journal entry for a sale on accountFor a sale on credit, debit Accounts receivable and credit Revenue for the price; under a perpetual inventory system also debit Cost of goods sold and credit Inventory for what the goods cost. When the customer pays, debit Cash and credit Accounts receivable.Entry
- Journal entry for a customer refundTo refund a customer for an invoice already paid, issue a credit note — debit Sales returns and allowances, credit Accounts receivable — then pay the refund: debit Accounts receivable, credit Cash.Entry
- AllowanceRollForwardWith the methodology shown, not just the number.Component
- AgingTableAR/AP buckets, 0-30-60-90+.Component
An illustrative company, not anyone’s real books. Every figure on this page is computed from the inputs in the example and posted by the same functions as the journal entry balancer. General information for US companies under US GAAP, not accounting or tax advice.