Transcript Accounting for Uncollectible Accounts Receivables

ACCOUNTING FOR Chapter 17
UNCOLLECTIBLE ACCOUNTS
RECEIVABLES Accounting I/II
SECTION 1 –
Uncollectible Accounts
WHY SELL ON ACCOUNT?
Encourage sales
Check credit history
Uncollectible account (bad debt)
 Expense to business
Two ways to handle uncollectible accounts
 Allowance Method
 Direct Write-Off Method
*We will focus on the Allowance Method*
ALLOWANCE METHOD
CONCEPT: Matching Expenses with Revenue
Meets two objectives:
 Assets not overstated on Balance Sheet
 Expenses not understated on Income Statement
ALLOWANCE METHOD (CONT.)
Businesses estimate uncollectible accounts expense
and record as an adjusting entry at the end of
the period.
Two methods for estimating this expense
 % of total sales on account
 % of net sales
PERCENT OF SALES
% of total sales
Total sales on account * Percentage
% of net sales
Net sales * Percentage
Net Sales = Sales – (Sales Discount + Sales Returns & Allowances)
RECORDING ADJUSTING ENTRY
Debit: Uncollectible Accounts Expense
Credit: Allowance for Uncollectible Accounts
**Contra-asset account to Accounts Receivable
Book Value of Accounts Receivable
Amount business can reasonably expect to receive from
all accounts receivable
Accts Rec – Allowance for Uncollectible Accts
ANALYZING AND RECORDING AN ADJUSTMENT FOR
UNCOLLECTIBLE ACCOUNTS RECEIVABLE
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2
1. Enter and label credit amount.
2. Enter and label debit amount.
3. Record adjusting entry.
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3
PROBLEMS
Complete the following on PAPER:
 Work Together 17-1
 On Your Own 17-1
 Application 17-1
 Chapter 17 Study Guide
SECTION 2 –
Writing Off and Collecting Uncollectible
Accounts Receivable
WRITING OFF AN ACCOUNT
When an account has been labeled as uncollectible it
must be written-off as an expense of the business.
Debit: Allowance for Uncollectible Accounts
Credit: Accounts Receivable/Customer
When posting, “Written Off” is recorded in the item
column.
JOURNALIZING WRITING OFF AN
UNCOLLECTIBLE ACCOUNT
January 4. Wrote off Metro Food Court’s past-due account as
uncollectible, $1,621.00. Memorandum No. 3.
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2
1. Debit
2. Credit and customer’s name
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POSTING AN ENTRY TO WRITE OFF AN
UNCOLLECTIBLE ACCOUNT RECEIVABLE
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3
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4
1. Post the debit amount to
general ledger.
2. Post the credit amount to
general ledger.
3. Post the credit amount to
customer account.
4. Write Written off in the
customer account.
CUSTOMER PAYS ON A
WRITTEN-OFF ACCOUNT
Must do two things:
 Reopen account
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


Debit: Accounts Receivable/Customer
Credit: Allowance for Uncollectible Accounts
General Journal
When posting, “Reopen account” is recorded in the Item column.
 Record payment
 Debit: Cash
 Credit: Accounts Receivable/Customer
 Cash Receipts Journal
REOPENING AN ACCOUNT PREVIOUSLY
WRITTEN OFF
January 30. Received cash in full payment of Metro Food Court’s
account, previously written off as uncollectible, $1,621.00.
Memorandum No. 5 and Receipt No. 12.
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1
2
1. Enter a debit to Accounts Receivable. Place a diagonal line in the
Post. Ref. column.
2. Enter a credit to Allowance for Uncollectible Accounts.
RECORDING CASH RECEIVED FOR AN
ACCOUNT PREVIOUSLY WRITTEN OFF
January 30. Received cash in full payment of Metro Food Court’s
account, previously written off as uncollectible, $1,621.00.
Memorandum No. 5 and Receipt No. 12.
POSTING ENTRIES FOR COLLECTING A
WRITTEN-OFF ACCOUNT RECEIVABLE
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1
2
1. Post the general journal entry
to the general ledger.
2. Post the debit portion of the
general journal entry to the
customer account.
3. Write the words Reopen
account in the Item column of
the customer account.
4. Post the cash receipts journal
entry to the customer account.
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4
SUMMARY OF
ALLOWANCE METHOD
At the end of each fiscal period, uncollectible
accounts expense is estimated and adjusting entry is
recorded
Customer account is written off
If customer pays after writing off account
 Reopen account
 Record payment
PROBLEMS
Complete the following on PAPER:
 Work Together 17-2
 On Your Own 17-2
 Application 17-2
 Finish Chapter 17 Study Guide