1. Accounting for Uncollectible Accounts Receivable Chapter 20

2. Uncollectible Account What is it? What is it? An account that has defaulted (not paid) on what is owed to you… An account that has defaulted (not paid) on what is owed to you… What do you do? What do you do? 1. Either keep it on your books and hope that it is paid 2. Close the account out 1. Usually then we turn it over to a collection agency

3. Terms that you need to know. Accounts Receivable Accounts Receivable That account that we have used all year long when someone buys something from us on account. That account that we have used all year long when someone buys something from us on account. Allowance for Uncollectible Accounts Allowance for Uncollectible Accounts Contra account for Accounts Receivable Contra account for Accounts Receivable The balance in this account reduces the amount of accounts receivable The balance in this account reduces the amount of accounts receivable We agree that there will be a certain amount of accounts that will not be paid. We agree that there will be a certain amount of accounts that will not be paid.

4. Allowance method of recording losses from uncollectible accounts Allowance method of recording losses from uncollectible accounts When we use the allowance for uncollectible accounts account When we use the allowance for uncollectible accounts account Book Value Book Value The difference between an asset’s account balance and its related contra account balance is its book value. The difference between an asset’s account balance and its related contra account balance is its book value. Car example Car example More terms that you need to know.

5. Book value of accounts receivable Book value of accounts receivable The difference between accounts receivable and its contra account The difference between accounts receivable and its contra account Estimating uncollectible accounts expense Estimating uncollectible accounts expense Doesn't it make sense that we assume a portion of our accounts receivable will be uncollected? Doesn't it make sense that we assume a portion of our accounts receivable will be uncollected? So we estimate a number, that a portion of our sales on account will be uncollectible. We get that percentage either from prior years or what the industry average is….. So we estimate a number, that a portion of our sales on account will be uncollectible. We get that percentage either from prior years or what the industry average is…..

6. Total Sales on Account X Percentage = Estimated Uncollectible Accounts Expense 982800x1%9828.00 We assume that 9828.00 additional will not be collected. We would add that to the actual amount that has not been collected and that would give us our total of uncollectible. The 9828 is an adjustment that goes on the worksheet adjustment column, and is journalized and posted just like the other adjustments.

7. Please work on On Your Own on page 532 Please work on On Your Own on page 532

8. Writing off and collecting accounts receivable. Once we determine that an account will not be collected. We need to write that account off. Once we determine that an account will not be collected. We need to write that account off. Here is how you need to think of it. When we first put the sale on our books we increased our Accounts Receivable, and increased our sales. Here is how you need to think of it. When we first put the sale on our books we increased our Accounts Receivable, and increased our sales. Now that it is uncollectible we need to decrease our Accounts receivable by writing it off, and using the contra account Allowance for Uncollectible accounts to decrease our sales account. This is called writing off the account. Now that it is uncollectible we need to decrease our Accounts receivable by writing it off, and using the contra account Allowance for Uncollectible accounts to decrease our sales account. This is called writing off the account.

9. General JournalPage 1 Date Account TitleDoc NoPost RefDebitCredit Dec3Allow. For Uncollectible AccountsM2 462 Accts. Rec./ Ryan Recreation 462 December 3 Wrote off Ryan Recreation’s past due account as uncollectible, $462.00 Memorandum No. 2 Remember that we must post these in the appropriate General ledger accounts As well…. Please look at page 534 in textbook

10. What happens if we receive money from an account that was previously written off? January 29. Received cash in full payment of Ryan Recreation’s account, previously written off as uncollectible. $462.00. Memorandum No. 3 and Receipt No. 8. Cash Receipts Journal DateAccount TitleDoc Post Ref General A/R Credit Sales Credit Sales Tax Payable Sales Discou nt Debit Cash Debit CreditDebitCredit Jan 2929 Ryan RecreationalR8 462 Step one: Record the cash that we received from the payment of the Accounts Rec.

11. Step two: is to fix the Account Receivable and put it back on the books as a receivable instead of a uncollectible. So we have to write it out of the uncollectible accounts account, and put it back onto the accounts receivable. General Journal DateAccount TitleDoc NoPost RefDebitCredit Jan29Accts/ Receivable/ Ryan RecreationM3 462 Allowance for Uncollectible Accts 462

12. Here is the work!!!!!! Problems 20-1,2,3 Problems 20-1,2,3 Computer Problem 20-4 Computer Problem 20-4