Chapter 8

Reporting_and_Analyzing_Receivables

Slide 1 to 14: Theory and part covered in chapter 5.

Slide 15 to 36:
Two methods could be used to treat the uncollectable account receivables:

1- Direct Write-Off Method: NOT acceptable by the accounting standards. (S. 18 – 19)

Note Account Dr. Cr.

ONLY one entry Bad Debt Expense 200
Accounts Receivable 200

2- Allowance Method: Recommended by the accounting standards. (S. 20 to 30)

Note Account Dr. Cr.

Estimation Bad Debt Expense 12,00
0
Allowance for Doubtful Accounts 12,000
Sure that a client Allowance for Doubtful Accounts 500
will not pay the
Accounts Receivable 500
dues, Will write-off
the receivables
If the company Accounts Receivable 500
collected a written-
Allowance for Doubtful Accounts 500
off receivables.
(Client paid the Cash 500
receivables after we
wrote-off his Accounts Receivable 500
receivables)

- Allowance for Doubtful Accounts could be estimated by using one of the following
methods:

1- Percent from sales …………………. (Sales * expected % of uncollectible AR)

2- Percent from Account receivables ….. = ( AR * expected % of uncollectible AR)
ADD: any previous Dr. Balance
OR LESS: any previous Cr. Balance.
 Question 1:
At December 31, 2008, Attwood Company reported Accounts Receivable of $34,000 and
Allowance for Doubtful Accounts of $3,500. On January 7, 2009, Brady Enterprises
declares bankruptcy and it is determined that the receivable of $1,200 from Brady is not
collectible.
1. What is the cash realizable value of Accounts Receivable at December 31, 2008?
= A/R - Allowance for Doubtful Accounts =
2. What entry would Attwood make to write off the Brady account?

Account Dr. Cr.

Allowance for Doubtful Accounts 1,200
Accounts Receivable 1,200

Question 2:
The income statement approach to estimating uncollectible accounts expense is
used by Dodson Company. On February 28, the firm had accounts receivable in the
amount of $437,000 and Allowance for Doubtful Accounts had a credit balance of
$2,140 before adjustment. Net credit sales for February amounted to $3,000,000.
The credit manager estimated that uncollectible accounts expense would amount to
1% of net credit sales made during February. On March 10, an accounts receivable
from Marie Green for $6,100 was determined to be uncollectible and written off.
However, on March 31, Green received an inheritance and immediately paid her
past due account in full.

Instructions
(a) Prepare the journal entries made by Dodson Company on the following dates:
1. February 28
2. March 10
3. March 31
Note Account Dr. Cr.
Estimation Bad Debt Expense 30,000
 February 28 Allowance for Doubtful Accounts 30,000
(Sales * expected % of uncollectible AR)
3,000,000 * 1%
Sure that a Allowance for Doubtful Accounts 6,100
client will not Accounts Receivable 61,00
pay the dues,
Will write-off
the receivables
March 10
If the company Accounts Receivable 6,100
collected a Allowance for Doubtful Accounts 6,100
written-off
receivables. Cash 6,100
(Client paid the Accounts Receivable 6,100
receivables
after we wrote-
off his
receivables)
March 31

Question3:
Lloyd Products is undecided about which base to use in estimating
uncollectible accounts. On December 31, 2008, the balance in Accounts
Receivable was $680,000 and net credit sales amounted to $3,500,000
during 2008. An aging analysis of the accounts receivable indicated that
$36,000 in accounts are expected to be uncollectible. Past experience has
shown that about 1% of net credit sales eventually are uncollectible.
Instructions
Prepare the adjusting entries to record estimated bad debts expense using the:
(1) Percentage of sales basis, and
(2) The percentage of receivables basis under each of the following
independent assumptions:
(2.a) Allowance for Doubtful Accounts has a credit balance of $3,200 before
adjustment.
(2.b) Allowance for Doubtful Accounts has a debit balance of $730 before
adjustment.

Note Account Dr. Cr.

1 Bad Debt Expense 35,000
Allowance for Doubtful Accounts 35,000
(Sales * expected % of uncollectible sales)
3.5 M * 1%

2.a Bad Debt Expense 32800

Allowance for Doubtful Account 32800
( AR * expected % of uncollectible AR) …. 36,000
LESS: any previous Cr. Balance………...... (3,200)

2.b Bad Debt Expense 36,730

Allowance for Doubtful Accounts 36,730
(AR * expected % of uncollectible AR) …. 36,000
Add: any previous Dr. Balance………...... (730)