ToMr. Zulfiqar

FromNajmus-Saquib Khan

ToMr. Zulfiqar

FromNajmus-Saquib Khan

Accounts Receivables

中级会计学

AccountingAccounting

Receivables

ReceivablesReceivablesReceivablesReceivables

Receivables are all claims against other entities. They are usually settled in cash.

Trade receivables: Receivables arising from normal operating activities.

Nontrade receivables: All receivables arising from activities other than normal operations.

Receivables

Valuation of accounts receivable for

uncollectible accounts Valuation of accounts receivable for

uncollectible accounts

Bad debt occur when customers do not pay for items or services purchased on credit.

Bad debts are uncollectible accounts receivable. Bad Debt Expense is reported as a selling or general and

administrative expense. Accounts receivable are reported on the balance sheet at

their net realizable value.

Receivables

Accounting for Uncollectible Receivables(Direct Method)

Accounting for Uncollectible Receivables(Direct Method)

Write Off:

Bad Debts Expense……………. 400

Accounts Receivable………. 400

To write off an uncollectible account.

This entry is made when the account has been determined uncollectible. Since this determination was made after the period in which the sale takes place, the matching principle is violated

This entry is made when the account has been determined uncollectible. Since this determination was made after the period in which the sale takes place, the matching principle is violated

Receivables

Accounting for Uncollectible Receivables (Estimated Bad Debts Method)

Accounting for Uncollectible Receivables (Estimated Bad Debts Method)

Bad debts can be estimated based on sales or on accounts

receivable.

Bad debts can be estimated based on sales or on accounts

receivable.

Estimated Bad Debts MethodEstimated Bad Debts Method

Receivables

1. Relationship to sales (income statement approach):

a. Percentage of salesb.Percentage of net credit sales

2. Relationship to accounts receivable (balance sheet approach):

a.Percentage of outstanding accounts receivable

b.Aging of accounts receivable

Estimated Bad Debts MethodEstimated Bad Debts Method

Receivables

In this method, an estimate of the total uncollectible accounts is made at the end of the period, and an expense is recognized.

Bad Debts Expense………………….. 2,000

Allowance for Doubtful Accounts.. 2,000 To record estimated uncollectible accounts.

When the account is then determined to be uncollectible, the write-off entry is:

Allowance for Doubtful Accounts……... 400 Accounts Receivable…………………… 400 To write off an uncollectible account.

Recovery Of Previously Written-off AccountRecovery Of Previously Written-off Account

Receivables

Collection of an Accounts Receivable previously written off is evidence that the write off was an error; the receivable should therefore be reinstated as an asset.

Accounts Receivable…… 400

Allowance for Doubtful Accounts….. 400 To reinstate as an asset an accounts receivable previously written off.

A separate entry will be made in the cash receipt journal to record the collection.

Cash……... 400 Accounts Receivable…………………… 400 To record receipt of a previously written off account.

Aging Of Accounts ReceivableAging Of Accounts Receivable

Receivables

Bad Debts Expense………………….. 898

Allowance for Doubtful Accounts………. 898 To record estimated uncollectible accounts.

Age Group Amount % of Bad Debt Amount of Bad Debt

Not yet due 3,600 3% 108

1-30 days due 1,600 5% 80

31-60 days due 900 10 % 90

61-90 days due 400 15 % 60

Above 90 days 1,400 40 % 560

Total estimated Bad Debt Expense: 898

Credit Balance In a Customer AccountCredit Balance In a Customer Account

Receivables

Abdul Hafeez Abdur Razzaq

5,000 1000

Accounts Receivable (Control Account)

4,000

(5,000-1,000)

Adjusting Entry To Record The AdvanceAdjusting Entry To Record The Advance

Receivables

Accounts Receivable…………. 1,000

Advance From Customer………. 1,000

To Record Advance From Customer.

Accounts Receivable (Control Account)

5,000

ExampleExample

Receivables

1. Bad Debt is estimated @ 10% of Accounts Receivable

2. Bad Debt is estimated @ 1% of Net Credit Sales.

Accounts Receivable Balance = Rs. 5,000.Allowances For Bad Debt (Cr) Balance = Rs. 100.Net Credit Sales = Rs. 50,000.

Computation Bad Debt ExpenseBalance Sheet Approach: (5000 x 10%) = 500Less Allowances for Bad Debt Cr Balance = (100)Bad Debt Expense = 400

Income Statement Approach: (50000 x 1%) = 500

Receivables

Balance Sheet Approach:Balance Sheet Approach:

Allowances For Bad Debt

100

400

Bal 500

Income Statement Approach:Income Statement Approach:

Allowances For Bad Debt

100

500

Bal 600

Receivables

Assets EquitiesCurrent Assets:

Accounts Receivable 5,000

Less: All. For bad debt (600)

Net Realizable Value 4400

Liabilities:

Advance from customer 1,000

Assets EquitiesCurrent Assets:

Accounts Receivable 5,000

Less: All. For bad debt (500)

Net Realizable Value 4500

Liabilities:Advance from customer 1,000

Balance Sheet Approach:Balance Sheet Approach:

Income Statement Approach:Income Statement Approach: