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Note that prior to the August 24 entry of $1,400 to write off the uncollectible amount, the net

realizable value of the accounts receivables was $230,000 ($240,000 debit balance in Accounts

Receivable and $10,000 credit balance in Allowance for Doubtful Accounts). After writing off the

bad account on August 24, the net realizable value of the accounts receivable is still $230,000

($238,600 debit balance in Accounts Receivable and $8,600 credit balance in Allowance for

Doubtful Accounts). The Bad Debts Expense remains at $10,000.

Accrued income and prepaid expenses

Prepaid Expenses

In the normal course of business, some of the expenses may be paid in advance. However, the

organization may not receive the benefits from these expenses by the end of the current

accounting year. We call these expenses as prepaid expenses. We treat them as current assets.

The Journal entry to record prepaid expenses is:

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