Section 3Estimating Uncollectible Accounts Receivable What You’ll Learn  How to use the percentage of net sales method to determine the estimated uncollectible.

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Presentation transcript:

Section 3Estimating Uncollectible Accounts Receivable What You’ll Learn  How to use the percentage of net sales method to determine the estimated uncollectible accounts expense.  How to use the aging of accounts receivable method to determine estimated uncollectible accounts expense. What You’ll Learn  How to use the percentage of net sales method to determine the estimated uncollectible accounts expense.  How to use the aging of accounts receivable method to determine estimated uncollectible accounts expense.

Why It’s Important In order to use the allowance method, uncollectible accounts expense is estimated at the end of the period. Why It’s Important In order to use the allowance method, uncollectible accounts expense is estimated at the end of the period. Key Terms  percentage of net sales method  aging of accounts receivable method Key Terms  percentage of net sales method  aging of accounts receivable method Section 3Estimating Uncollectible Accounts Receivable (cont'd.)

Estimating Uncollectible Accounts Expense  The percentage of net sales and the aging of accounts receivable are two ways a business may calculate an estimate of uncollectible accounts expenses.  These estimates are based on judgment and past experience.  The percentage of net sales and the aging of accounts receivable are two ways a business may calculate an estimate of uncollectible accounts expenses.  These estimates are based on judgment and past experience. Section 3Estimating Uncollectible Accounts Receivable (cont'd.)

Percentage of Net Sales Method (1) Determine the percentage. Section 3Estimating Uncollectible Accounts Receivable (cont'd.) (2) Calculate net sales. (3) Multiply net sales by the percentage. (4) Enter the amount calculated above on the work sheet.

The Aging of Accounts Receivable Method Section 3Estimating Uncollectible Accounts Receivable (cont'd.) (1) “Age,” or classify and group, each account according to due date. (2) Determine a percentage for each group. (3) Multiply the amount per group by the percentage per group and add the results. (4) Enter on the work sheet the total estimated uncollectible amount (calculated above) adjusted by any balance in Allowance for Uncollectible Accounts.

Check Your Understanding Explain the aging of accounts receivable method of estimating uncollectible accounts expense. Section 3Estimating Uncollectible Accounts Receivable (cont'd.)