The bad debt expense is debited as part of the overall cost of making the credit sales, and the allowance for doubtful accounts is credited as a reduction to the total amount of accounts receivable. The journal entry of a credit sale will result in an increase in both the accounts receivable and the sales account. The debit to the accounts receivable account will indicate that the customer has purchased goods or services on credit. The credit to the sales account will indicate that the company has earned revenue on the sale. When a company sells goods on credit, it reports the transaction on both its income statement and its balance sheet.<\/p>\n

Accounts Receivable and Bad Debts Expense Outline<\/h2>\n

Credit sales are recorded when a company has delivered a product or service to a customer (and thus has \u201cearned\u201d the revenue per accrual accounting standards). The gross credit sales metric neglects any reductions from customer returns, discounts, and allowances, whereas net credit sales adjust for all of those factors. If the customer later pays off the balance owed, you would then make a second journal entry that reverses the original transaction.<\/p>\n