Accounts Receivables

To
Mr. Zulfiqar

From
Najmus-Saquib Khan

Accounting
中级会计学
Receivables

Receivables

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

 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)

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
Receivables

Accounting for Uncollectible Receivables

(Estimated Bad Debts Method)

Bad debts can be estimated

based on sales or on accounts
receivable.
Receivables

Estimated Bad Debts Method

1. Relationship to sales (income statement

approach):
a. Percentage of sales
b.Percentage of net credit sales
2. Relationship to accounts receivable (balance
sheet approach):
a. Percentage of outstanding accounts
receivable
b.Aging of accounts receivable
Receivables

Estimated Bad Debts Method

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.
Receivables

Recovery Of Previously Written-off Account

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.
Receivables

Aging Of Accounts Receivable

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

Bad Debts Expense………………….. 898

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

Credit Balance In a Customer Account

Abdul Hafeez Abdur Razzaq

5,000 1000

(5,000-1,000)

Accounts Receivable (Control Account)

4,000
Receivables

Adjusting Entry To Record The Advance

Accounts Receivable…………. 1,000

Advance From Customer………. 1,000
To Record Advance From Customer.

Accounts Receivable (Control Account)

5,000
Receivables

Example

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

1. 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 Expense

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

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

Receivables

Income Statement Approach:

Allowances For Bad Debt

100
500
Bal 600

Balance Sheet Approach:

Allowances For Bad Debt
100
400
Bal 500
Receivables

Income Statement Approach:

Assets Equities
Current Assets: Liabilities:
Accounts Receivable 5,000 Advance from customer 1,000
Less: All. For bad debt (600)
Net Realizable Value 4400

Balance Sheet Approach:

Assets Equities
Current Assets: Liabilities:
Accounts Receivable 5,000 Advance from customer 1,000
Less: All. For bad debt (500)
Net Realizable Value 4500