Accounts receivable Chapter 16

(a) Dealing with deadbeats Allowance method Adjusting entry for estimated bad debts Bad Debt Expense 1000 Allow for Doubtful Accts 1000 Write off accounts as they occur Allowance for Doubtful Accts 1000 Accts Rec / J. Smith 1000

(b) Estimating uncollectibles Percentage of sales method Using past information, determine how much will be uncollectible How much was uncollectible / total credit sales (example: $3,000 uncollectible / $300,000 in total credit sales = 1% uncollectible) Percentage of receivables method Total amount of all customer balances * estimated uncollectible percentage (example: A/R general ledger balance $400,000 * 1% estimated uncollectible = $4,000)

(c) Aging the receivables Total credit sales in accounts receivable account - $400,000 0-30 days (not late) – 1% uncollectible $200,000 $2,000 31-60 days late – 10% uncollectible $100,000 $10,000 61-90 days late – 25% uncollectible $50,000 $12,500 Over 90 days late – 80% uncollectible $50,000 $40,000 Total estimated uncollectible $64,500

(d) What if a deadbeat pays? Reinstate the account that was previously written off Accounts receivable / J. Smith 300 Allowance for doubtful accounts 300 Then record the collection Cash 300 Accounts receivable / J. Smith 300

(E) Direct write-off method Customer doesn’t pay, you give up Bad debt expense 500 Accounts Receivable / J. Jones 500 Then reinstate the account (same fiscal period) Accounts receivable / J. Jones 500 Bad debt expense 500 Then record customer payment Cash 500 Accounts receivable / J. Jones 500

(f) Direct write-off method Customer doesn’t pay, you give up Bad debt expense 500 Accounts Receivable / J. Jones 500 Then reinstate the account (different fiscal period) Accounts receivable / J. Jones 500 Uncollectible accounts recovered 500 Then record customer payment Cash 500 Accounts receivable / J. Jones 500

assignments Read pages 625-641 Exercises 1, 2, 3, 4, 5 Problems 8A, 9A, 10A Pages 645 – 646