2. A business using the direct write-off method to write off uncollectible accounts converts an account receivable to an expense when it become clear the customer will not pay the bill. A business using the allowance method estimates the bad debt expense and writes off that amount.
Glencoe Accounting
Glencoe Accounting
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

3. Explain methods used to write off uncollectible accounts.
Determine uncollectible accounts receivable.
Use the direct write-off method for uncollectible accounts.
Calculate bad debts expense.
Make an adjusting entry for uncollectible accounts.
Use the allowance method to record uncollectible accounts.
Record the collection of an account previously written off.
Describe two methods to estimate uncollectible accounts expense.
Glencoe Accounting
Glencoe Accounting
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

4. Key Terms uncollectible account direct write-off method
The Direct Write-Off Method
Section 24.1
Key Terms
uncollectible account
direct write-off method
Glencoe Accounting

5. Extending Credit Methods for Dealing with an Uncollectible Account
The Direct Write-Off Method
Section 24.1
Methods for Dealing with an Uncollectible Account
Direct Write-Off Method
Allowance Method
direct write-off method
A procedure for uncollectible accounts receivable; the business removes the uncollectible account from its accounting records when it determines the amount is not going to be paid.
uncollectible account
An account receivable that the business cannot collect; also called a bad debt.
Glencoe Accounting

6. The Direct Write-Off Method
Section 24.1
Writing Off an Uncollectible Account
Business Transaction
On August 25, 2013 The Starting Line wrote off as uncollectible Galvin’s account for $265, Memorandum 170.
See page 702
Glencoe Accounting

7. The Direct Write-Off Method
Section 24.1
Writing Off an Uncollectible Account
Business Transaction
On August 25, 2013 The Starting Line wrote off as uncollectible Galvin’s account for $265, Memorandum 170.
See page 702
Glencoe Accounting

8. The Direct Write-Off Method
Section 24.1
When a Written-Off Account Is Paid:
Reinstate the customer’s account.
Record the cash receipt.
Glencoe Accounting

9. The Direct Write-Off Method
Section 24.1
Collecting a Written-Off Account
Business Transaction
On September 5 The Starting Line received $265 from Robert Galvin, whose account was written off as uncollectible on August 25, Memorandum 176 and Receipt First reinstate the account receivable.
See pages 703–704
Glencoe Accounting

10. The Direct Write-Off Method
Section 24.1
Collecting a Written-Off Account
Business Transaction
On September 5 The Starting Line received $265 from Robert Galvin, whose account was written off as uncollectible on August 25, Memorandum 176 and Receipt First reinstate the account receivable.
See pages 703–704
Glencoe Accounting

11. Key Terms allowance method book value of accounts receivable
Section 24.2
The Allowance Method
Key Terms
allowance method
book value of accounts receivable
Glencoe Accounting

12. Matching Uncollectible Accounts Expense with Revenue
Section 24.2
The Allowance Method
Under the matching principle, the uncollectible accounts expense should be reported in the same year the sale takes place.
To conform to this principle, credit sales are recorded in one year and an estimate of uncollectible accounts expense is recorded in the same year.
Glencoe Accounting

13. The Allowance Method the Allowance Method? What Is allowance method
Section 24.2
The Allowance Method
What Is
the Allowance Method?
allowance method
A procedure for uncollectible accounts receivable; the business matches the estimated uncollectible account expense with the sales made during the same period.
Glencoe Accounting

14. Uncollectible Accounts Expense Allowance for Uncollectible Accounts
The Allowance Method
Section 24.2
The Allowance Method
The estimated uncollectible accounts expense is recorded as an adjustment, which affects two accounts:
Uncollectible Accounts Expense
Allowance for Uncollectible Accounts
Glencoe Accounting

15. Allowance for Uncollectible Accounts
The Allowance Method
Section 24.2
The Allowance Method
Pg. 707
Allowance for Uncollectible Accounts
Opposite Acts. Receivable to offset
Glencoe Accounting

16. The Allowance Method
Section 24.2
The Allowance Method
Adjustment
On December 31 The Starting Line estimates its uncollectible accounts expense for the year ended December  31 to be $1,350. (Various methods are used to estimate uncollectible accounts expense.)
See page 708
Glencoe Accounting

17. The Allowance Method
Section 24.2
The Allowance Method
Adjustment
On December 31 The Starting Line estimates its uncollectible accounts expense for the year ended December 31 to be $1,350. (Various methods are used to estimate uncollectible accounts expense.)
See page 708
Glencoe Accounting

18. book value of accounts receivable
The Allowance Method
Section 24.2
The Allowance Method
The book value of accounts receivable is the difference between Accounts Receivable and Allowance for Uncollectible Accounts.
book value of accounts receivable
The amount the business can reasonable expect to collect from its accounts receivable.
Glencoe Accounting

19. The Allowance Method Uncollectible Accounts Expense See page 709
Section 24.2
The Allowance Method
See page 709
Uncollectible Accounts Expense
Glencoe Accounting

20. The Allowance Method
Section 24.2
The Allowance Method
Allowance for Uncollectible Accounts on the Balance Sheet
See page 709
Glencoe Accounting

21. The Allowance Method
Section 24.2
The Allowance Method
At the end of the period, Uncollectible Accounts Expense is closed to Income Summary.
The balance of Allowance for Uncollectible Accounts is not affected by closing entries.
Glencoe Accounting

22. The Allowance Method
Section 24.2
The Allowance Method
Journalizing the Adjusting Entry for Uncollectible Accounts
See page 710
Glencoe Accounting

23. The Allowance Method
Section 24.2
The Allowance Method
The Allowance for Uncollectible Accounts balance is saved until a business dips into it to write off an uncollectible account.
The write-off of an account does not affect an expense account because the expense was recorded as an adjustment.
Glencoe Accounting

24. The Allowance Method
Section 24.2
The Allowance Method
Business Transaction
On April 18 after many attempts to collect the amount owed, The Starting Line decides to write off the account of Megan Sullivan for $150, Memorandum 236.
See page 711
Glencoe Accounting

25. The Allowance Method
Section 24.2
The Allowance Method
Business Transaction
On April 18 after many attempts to collect the amount owed, The Starting Line decides to write off the account of Megan Sullivan for $150, Memorandum 236.
See pages 711–712
Glencoe Accounting

26. The Allowance Method To post a payment on a written-off account:
Section 24.2
The Allowance Method
To post a payment on a written-off account:
Reinstate the account as shown on the following slides.
Record the cash receipt by debiting Cash in Bank and crediting Accounts Receivable (controlling and subsidiary).
Glencoe Accounting

27. The Allowance Method
Section 24.2
The Allowance Method
Business Transaction
On November 19 The Starting Line received a check for $150 from Megan Sullivan, whose account was written off April 18, Memorandum 294 and Receipt 2243.
See pages 712–713
Glencoe Accounting

28. The Allowance Method
Section 24.2
The Allowance Method
Business Transaction
On November 19 The Starting Line received a check for $150 from Megan Sullivan, whose account was written off April 18, Memorandum 294 and Receipt 2243.
See pages 712–713
Glencoe Accounting

29. Key Terms percentage of net sales method
Estimating Uncollectible Accounts Receivable
Section 24.3
Key Terms
percentage of net sales method
aging of accounts receivable method
Glencoe Accounting

30. Percentage of Net Sales Method
Estimating Uncollectible Accounts Receivable
Section 24.3
What Is
Percentage of Net Sales Method?
percentage of net sales method
A method of estimating uncollectible accounts expense in which a business assumes that a certain percentage of each year’s net sales will be uncollectible.
Glencoe Accounting

31. Percentage of Net Sales Method
Estimating Uncollectible Accounts Receivable
Section 24.3
Determine the percentage.
Finding the adjustment for uncollectible accounts expense
Calculate net sales.
Multiply net sales by the percentage.
Enter the amount calculated above on the work sheet.
Glencoe Accounting

32. Aging of Accounts Receivable Method
Estimating Uncollectible Accounts Receivable
Section 24.3
What Is
the Aging of Accounts Receivable Method?
aging of accounts receivable method
A method of estimating the uncollectible accounts expense in which each customer’s account is classified by age; the age classifications are multiplied by certain percentages; and the total estimated uncollectible amounts are added to determine the end-of-period balance of Allowance for Uncollectible Accounts.
Glencoe Accounting

33. Aging of Accounts Receivable Method
Estimating Uncollectible Accounts Receivable
Section 24.3
Steps for Finding the Adjustments for Uncollectible Accounts Expense
Classify and group each account according to the number of days it is past due.
Use past experience to determine the percentage of each group that will be uncollectible.
Multiply the uncollectible amount for each group by the percentage for that group.
Add the results for all groups.
Enter the estimated uncollectible amount adjusted by any balance in Allowance for Uncollectible Accounts.
Glencoe Accounting

34. Aging of Accounts Receivable Method
Estimating Uncollectible Accounts Receivable
Section 24.3
See page 717
Glencoe Accounting

35. Aging of Accounts Receivable Method
Estimating Uncollectible Accounts Receivable
Section 24.3
See page 717
Glencoe Accounting

36. Question 1
Calculate the allowance for uncollectible accounts using the aging of accounts receivable method and the following information:
$ 56 30 65 80
200
$ 431
Glencoe Accounting

37. Question 2
What assumptions are made in using the percentage of sales method and the aging of accounts receivable method in estimating the allowance for uncollectible accounts?
Both methods attempt to predict as closely as possible the amount of uncollectible accounts a business will have in a year. The percentage of sales method assumes that a certain percentage of each year’s net sales will be uncollectible. The aging of accounts receivable method assumes that the longer an account is overdue, the less likely it is to be collected.
Glencoe Accounting

38. End of