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Acc AC015 Bab 7
Chapter : 7
Accounting for
Receivables
CONTENTS
7.1 Definition of Account receivables
7.2 Bad debt
7.3 Recovery of Bad Debts
7.4 Presentation of Accounts Receivable in the

Statements of Financial Position
is the amount owed to
7.1 01 a company resulting
from the company
providing goods or
services on credit.
Definition of is collected within a

02 credit terms.
account receivable
indicate when payment
is due for sales made on
03 credit. It is normally in
terms of 30 or 60 days.
Example : Transaction that
involved account receivable Refering to the
example, Encik Ali is
classified as a debtor
Sales on credit starting from the date of
sales on credit is made.
amounted RM2,000 to
Encik Ali Suman with
credit terms 2/10,
Dr account receivable 2,000
n/30 on 1st July 2015
Cr sale 2,000
Valuation Account Receivable
In the SOFP, Accounts Receivable is recorded at
net realisable value as follow:-
Syarikat ARC
Statement of Financial Position (extracted) Net
As at 30 June 2015 Accounts
Account Receivables 120,000 Receivable
(-) allowance for doubtful Account (10,000)
Peruntukan Hutang Ragu 110,000
7.3 Bad Debt
Causes of bad debts:
a.Bankcruptcy of a
debtor
Account b.The debtor is insane
receivable that c.The death of the debtor
d.The debtor cannot be
is uncollectible traced
after the due
Recorded as a bad
date of credit debt expense under
terms operating expenses in
the Statement of
Comprehensive
Income
Learned in Writting Off Bad Debt
previous
lecture;
Writting off Bad Debt
Chapter 5
Write-off method Allowance method
date details Dr Cr
(RM) (RM)
31 Bad Debt Expenses 1,000
Dec. Accounts Receivable 1,000
( To record bad debt)
Writting Off Bad Debt
ALLOWANCE
METHOD
a. AFDA does b. AFDA does
not exist exist before
before
No Bal. b/f Bal. b/f

AFDD AFDD available
Writing off bad debt : Allowance method
If the allowance does not If the balance AFDA
01 exist (Bal. b/f AFDA not 02 does exist before
available)
Dr Bad Debt Expense Dr Allowance for Doubtful Account

Cr Accounts Receivable Cr Accounts Receivable
(To record Bad Debt written off) (record bad debt written off)
7.3 Recovery of Bad
Debts
Bad debt recovery
Amount of debt
that is recovered
either in whole or
in part after it has
been written off or
classified as bad
debt.
Re-establish acc
Write-off method 01 receivable
Dr Account receivable
Cr Bad debt recovery
EXAMPLE
On 30 November
2014, Amir Khan is record the cash
able to settle RM600 02 receipt
of his debt after a year
Dr Cash
his debts write off
Cr Account receivable
Journal entry for bad debt recovery
Date Details Dr (RM) Cr (RM)
31Dec. Account receivable 600
Bad debt recovery 600
(Re-establish acc receivable)

31Dec. Cash 600
Account receivable 600
(record the cash receipt)
Allowance method Re-establish acc
01 receivable
EXAMPLE Dr Account receivable

On 30 November Cr AFDA
2014, Amir Khan is
able to settle RM600
record the cash
of his debt after a year
his debts write off.
02 receipt
Business had Dr Cash
beginning balance Cr Account receivable
AFDA RM 2,500
Journal entry for bad debt recovery
31Dec. Accounts Receivable 600
AFDA 600
(Re-establish acc receivable)

31Dec. Cash 600
Accounts Receivable 600
(record the cash receipt)
Accounting Method for Uncollectible account
2 METHOD
ALLOWANCE DIRECT WRITE

METHOD OFF METHOD
Percentage of Percentage of
Receivables Net credit sales
Balance Basis
WRITE OFF
METHOD
Direct write-off method
Uncollectible No realizable
accounts receivable value of account
determined by receivable on
management to be the Statement of
written off directly Financial
from accounts Position
receivable
Journal entry:-
Writing off bad debt
date details Dr Cr
(RM) (RM)
31 Bad debt expenses XXXX
Dec. Account receivable XXXX
EXAMPLE
On 31st December 2015, the balance of accounts
receivable Siti Nurhahiha Entertainment is
RM148,000. As at the date, a debtor name Ali is
unable to pay his debt amounted to RM4,800.
date details Dr Cr
(RM) (RM)
31 Bad debt expenses 4,800
Dec. Account receivable 4,800
ALLOWANC
E METHOD
7.4.2 Allowance
Method
expense for the

Estimated uncollectible
uncollectible accounts is
accounts becomes matched against Allowance for
Bad Debts on the sales in the same Doubtful Account
basis of accounting period contradicts with
in which the sales Account
i. Percentage of Net occurred.
Receivable in the
Credit Sales
Statement of
ii. Percentage of Financial Position.
Receivables
PERCENTAGE OF
RECEIVABLES
BASIS
Percentage on the balance of
account receivable method
Closing closing balance

Percentage balance
of allowance
x acc receivable
allowance for
(%) (Balance c/f)
= Doubtful Debt
(balance c/f)
Northrop Technologies reported the following balances for 2016:
Q1 Credit Sales 600,000

Write-offs account receivable 2,000
Bad debts recovery 1,000
Collection account receivable 450,000
Allowance and sale returned 500
Beginning Accounts Receivable 50,000
Beginning Allowance for Doubtful Accounts 1,200
Required:
1. Prepare the journal entry to record transactions occurred at December 31,
2016
2. Prepare the journal entry to record adjustments If the company estimates
bad debt expense based on 2% on balance account receivable
SOLUTION: If had sale
discount
transaction,
01 Update account receivable need to update
ACCOUNT RECEIVABLES
2016
Jan-01balance b/f 50,000 Dec-31Allowance for doubtful account 2,000
sales 600,000 cash 1,000
bad debts recovery 1,000 cash 450,000
sales return 500
balance c/f 197,500
651,000 651,000
SOLUTION:
02 Calculate the new balance
allowance for doubtful debt
% x balance c/f account receivable= balance c/f AFDA
2% x 197,500 = 3,950
SOLUTION:
03 Adjusted account AFDA
Allowance for Doubtful Account
2016
Dec 31Account receivable 2,000 Jan 1Balance b/f 1,200
Balance c/f 3,950 Bad debts expenses 4,750
5,950 5,950
SOLUTION:
04 Record in journal adjustment
date details Dr Cr
(RM) (RM)
31 Bad debt 5,750
Dec. Allowance for doubtful Account 5,750
( record increase in allowance debts)
SOLUTION:
05 Presented in SOFP
Northrop Technologies
Statement of Financial Position (extracted)
As at 31 December 2016
Account Receivables 197,500
(-) Allowance for Doubtful Account (3,950)
193,550

Required:
2016
bad debt expense based on 2% on balance account receivable
SOLUTION:
01 Update account receivable
ACCOUNT RECEIVABLES
2016
Jan-01balance b/f 50,000 Dec-31Allowance for Doubtful Account 2,000
sales 600,000 cash 1,000
bad debts recovery 1,000 cash 450,000
sales return 500
balance c/f 197,500
651,000 651,000
SOLUTION:
02 Calculate the new balance
allowance for doubtful debt
% x balance c/f account receivable= balance c/f AFDA
2% x 197,500 = 3,950
SOLUTION:
03 Adjusted account AFDA
2016
Decrease in AFDA 1,400
Balance c/f 3,950
7,350 7,350
SOLUTION:
date details Dr Cr
(RM) (RM)
31 Allowance for doubtful debts 1,400
Dec. Decrease in AFDA 1,400
( record decrease in allowance debts)
SOLUTION:
(-) Allowance for Doubtful Account (3,950)
193,550
PERCENTAGE OF
NET CREDIT
SALES
Percentage on the credit sale basis
Percentage Bad debts

Net Credit
=
of allowance
x
sale expenses
(%)
Value of bad debt expense is calculated using

the above formula.
Net Credit Sales is the amount of total credit
sales minus Sales Discount and Sales return.

Required:
2016
bad debt expense based 0.5% of net credit sales
SOLUTION:
01 Calculate the bad debts expenses(adjustment
AFDA) using formula
% x net credit sale = bad debts expenses
0.5% x (600,000 – 500)

= 2,997.50
SOLUTION:
date details Dr Cr
(RM) (RM)
31 Bad debt expenses 2,997.50
Dec. Allowance for Doubtful Account 2,997.50
( record increase in allowance debts)
SOLUTION:
03 update account AFDA if necessary
2016
Balance c/f 2,197.50 Bad debts expenses 2,997.50
4,197.50 4,197.50
SOLUTION:
(-) Allowance for Doubtful Account (2,197.50)
195,302.50
T H A N K
Y O U

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Acc AC015 Bab 7

7.2 Bad debt

7.3 Recovery of Bad Debts

7.4 Presentation of Accounts Receivable in the

Definition of is collected within a

Write-off method Allowance method

No Bal. b/f Bal. b/f

Dr Bad Debt Expense Dr Allowance for Doubtful Account

Date Details Dr (RM) Cr (RM)

EXAMPLE Dr Account receivable

Date Details Dr (RM) Cr (RM)

ALLOWANCE DIRECT WRITE

expense for the

Closing closing balance

Q1 Credit Sales 600,000

% x balance c/f account receivable= balance c/f AFDA

Q2 Credit Sales 600,000

% x balance c/f account receivable= balance c/f AFDA

Percentage Bad debts

Value of bad debt expense is calculated using

Q3 Credit Sales 600,000

% x net credit sale = bad debts expenses

0.5% x (600,000 – 500)

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