1. Merchandising Business
Accounts Receivable
Merchandising Business

2. Accounts Receivable
Another extra consideration for a Merchandising Company is its Accounts Receivable Instead of reputable businesses, it now consists of individual customers

3. Accounts Receivable Age Analysis
Do you think the following receivables will all be collected?
Customer
Total A/R
0-30 Days
31-60 Days
61-90 Days
90+ Days
Bill Murray
$15,000
$10,000
$5,000
Dan Aykroyd
$29,000
$20,000
$9,000
Harold Ramis
$83,000
$47,000
$21,000
$12,000
$3,000

4. Bad Debts Expense
If we assume that all Sales are guaranteed to be collected we are certainly overstating Net Income An estimate needs to be made of uncollectable accounts during the same period that these suspect sales are made How can we estimate?

5. % Uncollectible Estimates
Balance Sheet Method
Based on past experience we can predict the uncollectable portion from each overdue range
Customer
Total A/R
0-30 Days
31-60 Days
61-90 Days
90+ Days
% Uncollectible Estimates 2% 5%
15%
30%
Bill Murray
$15,000
$10,000
$5,000
Dan Aykroyd
$29,000
$20,000
$9,000
Harold Ramis
$83,000
$47,000
$21,000
$12,000
$3,000

6. Income Statement Method
An easier method makes a total estimate of entire net sales Eg. Net Sales = $300,000 % uncollectible = 2% Bad Debts Expense = $6,000