Professional Documents
Culture Documents
Credit Sale: Dr Cr
receivables.
The uncollectible expense is placed on the
Or:
•Allowance Method
Under the
Allowance Method
Invoice
ABC Inc. $
If We Have
Rs1,000,000 in A/R
ESTIMATE the
amount, but don’t
remove any invoices
from A/R
Allowance Method
Anestimate can be
based on:
a) Size of the receivables
b) Age of the receivables
c) Past loss experience
d) All of the above
Allowance Method
Anestimate can be
based on:
a) Size of the receivables
b) Age of the receivables
c) Past loss experience
d) All of the above
Allowance Method
Dr. Cr.
Bad Debt Expense 2000
Allowance for Doubtful Accounts 2000
To record estimated bad debts
Allowance Method
(1) The Allowance for Doubtful Accounts is a
contra-asset account which is subtracted from
accounts receivable on the balance sheet.
(2) The actual write-off entry does not reduce net
receivables.
(3) The estimation error inherent in this approach is
more acceptable than the violation of matching
with the direct write-off method.
Reverse Write Off:
Accounts Receivable 500
Allowance for Doubtful Accounts 500
To reinstate a written-off receivable.
Percentage of Total Receivables-- Determines
the desired balance for Allowance for Doubtful
Accounts. The difference between the actual
and the desired balance is the expense entry.
Aging Method--The process of categorizing
Percentage
Estimated to be
Age Balance Uncollectible Amount
Current.............. Rs10,000 1.5 Rs 150
1-30 days.......... 4,000 4.0 160
31-90 days........ 2,100 20.0 420
Over 90 days..... 1,000 40.0 400
Rs17,000 Rs1,130
A written promise that allows someone to pay a
certain amount of money on or before a
specific future date.
Equals
Interest
Owed
Receivables are sold to banks or financial
institution for cash.
The banks companies pay cash at discounted