Accounts receivable
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Transcript of Accounts receivable
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: