ACCOUNT RECEIVABLE

SMK SRI TANJUNG BANYUWANGI

ACCOUNT RECEIVABLE

01 DEFINITIONS

02 CLASIFICATIONS

03 ACCOUNTING ISSUES
Account Receivable
What is Receivable?

Receivables - Claims held

against customers and
others for money, goods, or
services.
 Classifications
2. Notes
1. Account Receivable
Receivable ACC. Written promises to
RECEIVABLE pay a certain sum of
Oral promises of the
money on a
purchaser to pay for
specified future date.
goods and services
sold.
• usually expected to 3. Other
be collected in a Receivable
short amount of time
interest receivables, tax
receivables, and receivables
from employees.
 Accounting issues
Three accounting issues :
1. Recognizing
accounts receivable
2. Valuing accounts
receivable
3. Disposing of
accounts receivable
 Recognition of accounts receivable
1. Trade 2. Cash 3. Non-Recognition
Discounts Discount of Interest Element
(Sales Discounts) A company should
Use to :
• Avoid frequent measure receivables in
changes in catalogs • Offered to induce terms of their present
• Alter prices for prompt payment values
different quantities • Tems such as 2/10,
purchased n/30, EOM, n/30
• Hide the true invoice • Gross Method v.s Net
price from Method
competitors
 Valuation of accounts receivable
Uncollectible Accounts Receivable
 Record credits losses as debits to Bad Debt
Expense (Uncollectible Accounts Expense)
 Normal and necessary risk of doing bussines
on cred
 Two methods to account for uncollectible
accounts :
1. Direct write – of method
2. Allowance method
 Valuation of accounts receivable
Methods of Accounting for Uncollectible Accounts

Direct Write – Off Allowance Method

Theoretically deficient: Losses are estimated:
No matching Percentage of sales
Receivable not stated at cash Percentage of receivables
realizable value.
Not appropriate when amount
uncollectible is material
 Direct write off Method
Income Statement Approach
Estimated uncollectible accounts
S STRENGTHS
receivable is calculated based on a
WEAKNESS
certain percentage of total sales that
occurred in a certain period
SWOT T
W THREATS

OPPORTUNITIES
Balance Sheet Approach
O The estimated accounts receivable to be
journalized (recorded) is the difference
between last year's and current year's
balances
 Allowance Method
At the end of each period, estimate total bad
debts expected to be realized from that
period’s sales.
S STRENGTHS

WEAKNESS Two advantages to the

SWOT T allowance method:
W THREATS
1. It records estimated bad debts expense in
OPPORTUNITIES
the period when the related sales are
O recorded.
2. It reports accounts receivable on the
balance sheet at the estimated amount of
cash to be collected.