Allowance for Doubtful AR

Allowance for Doubtful Account Receivable (AR) for Cambodia Tax

Allowance for Doubtful AR is expense for accounting suppose, but it is not expense for Cambodia Tax, so it means that this expense is non-deductible expense for tax on income ( profit).

When companies sold goods to customers on credit (AR), some of customers may be bad debt. Accounting Standard required company estimate allowance for doubtful account receivable (AR) as expense when company sold goods to customers although we do not know which customer is bad debt. Cambodia Tax Law does not allow estimation of allowance for doubtful AR as deductible expense for tax on income (profit).

Example 1

Assume XYZ company sold goods of $50,000 ( $30,000 in cash and $20,000 on credit) to customers. Company estimated 2% of credit sale as bad debt.

Required

1.Estimate allowance for doubtful AR and make journal entry.

2.Suggest allowance for doubtful AR for tax on income(profit) purpose.

Answer 

1.Estimate Allowance for doubtful AR and Journal Entry 

Bad debt= $20,000 x 2%=$400

Dr.Bad Debt…………………….$400

Cr. Allowance for doubtful AR….$400

2.Tax on income treatment 

Bad debt of $400 is expense for accounting purpose, but estimated bad debt of $400 is non-deductible expense for tax on income.