Account Receivables by kuc14840

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									   Accounting for
Uncollectible Accounts
       Chapter 7
     Definition of some terms
              accounts – Accounts
 Uncollectible
 receivable that cannot be collected.
  – Sometimes referred to as bad debt.
 Writingoff an account – when a
 account is believed to be
 uncollectible, the account is no
 longer an asset to the company. The
 A/R should be canceled and removed
 from the assets of the business.
 Recording uncollectible accounts
            expense.
 When the account becomes
 uncollectible we have to reduce the
 Accounts receivable and increase the
 account called Uncollectible accounts
 expense.
  November 15 Wrote off James
 Nordquist’s past due account as
uncollectible, $50.00 Memo No. 21
                                  General Journal


                                                       Post
                                             Doc No.          Debit   Credit
                                                       Ref

  Date       Account Title


                                               M21             50
Nov      15 Uncollectible Accounts Expense

                                                                       50
             Accts Rec./James Nordquist
 Recording uncollectible accounts
 expense only when an amount is
 actually known to be uncollectible is
 called the DIRECT WRITE-OFF
 METHOD OF RECORDING LOSSES
 FROM UNCOLLECTIBLE ACCOUNTS
      Here are the steps you need to
     consider to see the whole picture
1.    A person buys something from us
      on account
     1. Increase accounts receivable
2.    The person does not pay on
      account
     1. Decrease the accounts receivable and
        increase uncollectible accounts
Now what do we do if this company
 decides to pay us after we have
        written them off?
 It   becomes a two step process.
  – We must first re-write the accounts
    back on the books that were previously
    written off and identify why they are
    written back on the books.
                                                    General Journal

                                                                               Doc       Post
                                                                                                          Debit          Credit
                                                                               No.       Ref
         Date              Account Title

                                                                               M54                         50
  Jan           21 Accts Rec./James Nordquist

                                                                                                                            50
                           Collection of Uncoll. Accounts


 Step 2 is to then recognize the cash received and decrease the
 accounts receivable
                                                        Cash Receipts Journal

                                                                          Sales Tax
                                              General       Accou          Payable         Sales Credit     Sales Discount Debit
                              Doc   Post                    nt Rec                                                                 Cash
Date       Account Title      No    Ref    Debit   Credit   Credit     Debit    Credit    Golf   Tennis      Golf      Tennis      Credit
21-Jan   James Norquist       R49                               50                                                                      50
                      Section 7-2
   Different Methods of Recoding
    Uncollectible Accounts Expense
    – Allowance Method
       A  method that says that there is no way that we
         know exactly how many customers will not pay but
         we can estimate or allow a certain amount to be
         assumed uncollectible.
        Two methods
            – Percentage of sales method
                 A percentage of each sales dollar will become an
                  uncollectible
            – Percentage of accounts receivable method
                 A percentage of acounts receivable at the fiscal
                  year-end will become uncollectible
         Percentage of Sales
 Lets   pretend
  – We have seen that over a number of
    years that .5% of sales has been
    uncollectible. This will be what we will
    assume that our uncollectible
    adjustment will be. And is recorded in
    our adjustment column of our
    worksheet.
 Accounts Receivable method
 When   we use this method we AGE
  the accounts receivable. Which
  means that we look at how old some
  of the accounts that have not been
  collected are…… Does that make
  sense?
 Let look at an example.
              Account   Not Due
customer      Balance   Yet              Days Account Balance Past Due
                                  1-30       31-60        61-90        over 90
Bill              735        35                                                700
Dawn              654                                             54           600
Bob               123                123
Sue               345                                                          345
Sally             234                                20           14           200
Matt              567                                 7           60           500
Mike              432                               200       232
Totals           3090        35      123            227       360             2345
Percentages                1.1%    4.0%           7.3%      11.7%            75.9%




                                           Age Group          Amount          Percentage   Uncollectible
                                           Not Yet Due                 935       11.00%          102.85
                                           1-30                        157       40.00%           62.80
                                           31-60                       200       73.00%          146.00
                                           61-90                       232       11.70%           27.14
                                           over 90                     345       75.90%          261.86
                                           Totals                                                600.65
  Writing off an uncollectible account-
           allowance method
January 5. Wrote off Candace Rhode’s past due account as uncollectible,
$42.80. Memorandum No. 71

                                           General Journal

                                                             Doc   Post
                                                                          Debit   Credit
                                                             No.   Ref
   Date       Account Title


                                                             M71          42.8
Jan       5   Allowance for Uncollectible Accts

                                                                                  42.8
              Accounts Rec./Candace Rhode

 REMEMBER THAT WHEN WE USE THE WRITE OFF METHOD WE
 USE THE UNCOLLECTIBLE ACCOUNTS EXPENSE ACCOUNT, WHEN
 WE USE THE ALLOWANCE METHOD WE USE THE ACCOUNT
 CALLED ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
                         Direct Write-off method
                                             General Journal

                                                                      Post
                                                          Doc No.            Debit   Credit
                                                                      Ref
      Date        Account Title

                                                            M21                50
Nov          15 Uncollectible Accounts Expense
                  Accts Rec./James Nordquist                                          50




                          Allowance Method
                                              General Journal

                                                                Doc   Post
                                                                             Debit   Credit
                                                                No.   Ref
  Date           Account Title


                                                                M71          42.8
Jan          5   Allowance for Uncollectible Accts

                                                                                      42.8
                 Accounts Rec./Candace Rhode
        7-3 A/R Turnover Ratio
 The  number of times the average
  amount of accounts receivable is
  collected during a specified period.
 Before we show you how to do the
  calculation lets make sure we
  understand what we are trying to
  do…….
1.    We want to find out what our actual
      Book value of A/R is. By taking the A/R
      and subtracting out the accounts that we
      did not receive (Uncollectible accounts)
     1. We do that both with the beginning
        and ending A/R
2.    Once we determine the ending value for
      both we add them together and divide
      by 2 to get the average. (average book
      value of A/R)
3.    We then divide the Net Sales on Account
      by the average A/R and that gives us the
      Ratio.
4.    We then divide 365 days by the ratio and
      that give us how many days our A/R
      turns over
5.    Or just look on page 206
            Problems
 7-1 On computer
 7-2,3,4,5,6,7

								
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