CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 7-2 Allowance Method of Recording Uncollectible Accounts Expense Allowance method of recording uncollectible accounts expense Estimating uncollectible accounts expense using a percentage of net sales Estimating uncollectible accounts expense using a percentage of accounts receivable Estimating the balance of uncollectible accounts by aging accounts receivable Writing off an uncollectible account Collecting a written-off account

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Chapter 7 Objectives Accounting for Uncollectible Accounts After studying Chapter 7, you will be able to: Define accounting terms related to uncollectible accounts. Identify accounting concepts and practices related to uncollectible accounts. Calculate and record estimated uncollectible accounts expense using the direct write-off method. Calculate and record estimated uncollectible accounts expense using the allowance method. Calculate and analyze accounts receivable turnover ratios. 2 LESSON 7-2

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Lesson 7-2 allowance method of recording losses from uncollectible accounts: crediting the estimated value of uncollectible accounts to a contra account aging accounts receivable: analyzing accounts receivable according to when they are due 3 LESSON 7-2

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 4 LESSON 7-2 ADJUSTMENT USING THE PERCENTAGE OF SALES METHOD page Compute the estimated uncollectible accounts expense. 2.Record an adjustment on a worksheet. Estimated Uncollectible Accounts Expense =Percentage×Net Sales $566.43=0.5%×$113,

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 5 LESSON 7-2 ADJUSTMENT USING AGING OF ACCOUNTS RECEIVABLE page 206

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 6 LESSON 7-2 ADJUSTMENT USING PERCENTAGE OF ACCOUNTS RECEIVABLE page Compute the total estimate. 3.Compute the addition to the allowance account. 1.Compute an estimate for each age group

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 7 LESSON 7-2 WRITING OFF AN UNCOLLECTIBLE ACCOUNT—ALLOWANCE METHOD January 5. Wrote off Candace Rhode’s past due account as uncollectible, $ Memorandum No. 71. page 208

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 8 LESSON 7-2 April 5. Received cash in full payment of Candace Rhode’s account, previously written off as uncollectible, $ Memorandum No. 92 and Receipt No Reopen the account. 2.Record the cash receipt. COLLECTING A WRITTEN-OFF ACCOUNT— ALLOWANCE METHOD page

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 9 LESSON 7-2 DEFINE TERMS REVIEW In Quizlet allowance method of recording losses from uncollectible accounts aging accounts receivable page 210 Edit this set: Chapter 7 AdvAcc (then SAVE)

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Exit Ticket for today: Audit Your Understanding What are the two methods commonly used to estimate uncollectible accounts expense? 2.What is the formula for estimating uncollectible accounts expense based on net sales? 3.How is the addition to allowance for uncollectible accounts calculated using the percentage of accounts receivable method? 10 LESSON 7-2 In a Word Document, SaveAS: Chapter7-2AYUYourName And drop in my Inbox today!

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Complete the following assignments for Chapter 7-2 today Define Terms Review on page 210. Answer Audit Your Understanding questions on page 210. Complete Work Together 7-2 on Aplia – page 210. Complete On Your Own 7-2 on Aplia – page 210. Complete Application Problem 7-2 on Aplia – page 215. Complete Application Problem 7-3 on Aplia – page Complete Application Problem 7-4 on Aplia – page LESSON 7-2