Corporatefinanceinstitute com 1 The Corporate Finance Institute Accounting For more eBooks please visit

DR Bad Debt Expense: 
2,000
CR Allowance for Doubtful Accounts (ADA):
2,000

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corporatefinanceinstitute.com
33
The Corporate Finance Institute
Accounting
Aging of Accounts Method:
•
This method focuses on the value of the net accounts receivable.
•
This method focuses more on the value of AR, therefore, being a
balance sheet approach.
•
This method assumes that the more days that go by, the higher the
percentage of uncollectibility
Example:
Therefore, from this example, the following entry should be made:
DR Bad Debt Expense
: 2,211
CR Allowance for Doubtful Accounts (ADA): 
2,211
Days
Outstanding
Accounts
Receivable Balance
Estimate
% uncollectible
Estimated amount 
uncollectible 
0 – 30
$210,100
0.2%
$420
31 – 60
84,500
0.6%
507
61 – 90 
26,900
2.0%
538
>90
7,460
10.0%
746
Total
$2,211

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corporatefinanceinstitute.com
34
The Corporate Finance Institute
Accounting
Inventory
Inventory is a current asset account found under the balance sheet. It is 
also often deemed the most illiquid of all current assets, thus excluding 
it from the numerator in the quick ratio calculation. Inventory will include 
the balance of all raw materials, work-in-progress and finished goods that 
a company has accumulated. There is an interplay between the inventory 
account and the cost of goods sold in the income statement.