This document discusses accounting for receivables including valuation techniques like the direct write-off method and allowance method. The allowance method estimates uncollectible amounts and records an allowance account rather than directly writing off receivables. The document also describes calculating the allowance using the percentage of sales method, which bases bad debt expense on net credit sales, and the percentage of receivables method, which bases the allowance on net accounts receivable. Sample journal entries are provided for recording estimated allowances, write-offs, and collections under each method.

1. Accounting for Receivables
Valuation & Presentation

2. Valuation Techniques
1. Direct Write-off Method
2. Allowance Method

3. Direct Write-off Method
• It reduces Accounts Receivables based on the
estimation
• Not permitted by IFRS if the amount is Material
• Journal:
Bad debt expense Credit
Accounts Receivables Credit

4. Allowance Method
• Allowance is declared based on the estimation
• Credit Accounts Receivables only when the entity
confirms that the uncollectible amount will not be
collected (Write off of Accounts Receivables)
• Methods of Recording Allowance:
1. Percentage of Sales Method
2. Percentage of Receivables Method

5. Allowance Method
Journals:
Estimation (Closing Date):
Bad debt Expense Debit
Allowance for doubtful expense Credit
Write-Off (On date):
Allowance for doubtful expense Debit
Accounts Receivables Credit
Collection (After Closing date):
Cash Debit
Accounts Receivables Debit
Allowances for doubtful expense Credit
Accounts Receivables Credit

6. Percentage of Sales Method
• Income Statement Approach
• Bad debt expense is calculated based on the Net credit
Sales
• Better impact on Matching Principles

7. Percentage of Sales Method
Data pertained from Esquire Electronics records as of May 31, 2022
Debit Credit
Sales Revenue (70% Credit) 1,000,000
Sales Return 150,000
Allowances for doubtful expense 6,500
Accounts Receivables 430,000
Bad debt is estimated at 5% on net credit sales.
1. Calculate Bad debt expense and Allowances for doubtful accounts
2. Calculate Net Realizable Value of Accounts Receivables
3. Prepare Journal Entries and Necessary Ledgers.

8. Percentage of Sales Method
STEP-1: Calculate the Base
STEP-2: Apply the Percentage
STEP-3: You will get “Bad Debt Expense” shown in the Income Statement
STEP-4: Calculate the adjusted amount of “Allowances to be charged” on
Balance Sheet
STEP-5: Calculate “Net Realizable Value (NRV)” of Accounts Receivable
STEP-6: Prepare “Journal Entries” and “Necessary Ledger”

9. Percentage of Sales Method
Data pertained from Anondo Electronics records as of May 31, 2022
Debit Credit
Sales Revenue (90% Credit) 180,000
Sales Return 5,000
Allowances for doubtful expense 1,200
Accounts Receivables 95,000
Bad debt is estimated at 5% on net credit sales.
1. Calculate Bad debt expense and Allowances for doubtful accounts
2. Calculate Net Realizable Value of Accounts Receivables
3. Prepare Journal Entries and Necessary Ledgers.

10. Percentage of Receivables Method
• Balance Sheet Approach
• Allowance (Closing) is calculated based on the Net
Accounts Receivables

11. Percentage of Receivables Method
Data pertained from Esquire Electronics records as of May 31, 2022
Debit Credit
Sales Revenue (70% Credit) 1,000,000
Sales Return 150,000
Allowances for doubtful expense 6,500
Accounts Receivables 430,000
March-30: Written off of Bad debt is 12,000 Tk
Bad debt is estimated at 10% on Net Accounts Receivables
1. Calculate Bad debt expense and Allowances for doubtful accounts
2. Calculate Net Realizable Value of Accounts Receivables
3. Prepare Journal Entries and Necessary Ledgers.

12. Percentage of Receivables Method
STEP-1: Calculate the Base
STEP-2: Apply the Percentage
STEP-3: You will get “Allowances for doubtful expense (closing)” shown in
the Balance Sheet
STEP-4: Calculate the adjusted amount of “Bad Debt Expense” for Income
Statement
STEP-5: Calculate “Net Realizable Value (NRV)” of Accounts Receivable
STEP-6: Prepare “Journal Entries” and “Necessary Ledger”

13. Percentage of Receivables Method
Data pertained from Esquire Electronics records as of May 31, 2022
Debit Credit
Allowances for doubtful expense 4,500
Accounts Receivables 430,000
March-30: Written off of Bad debt is 12,000 Tk
July-01: Collection from the debtors already written off Tk. 5,000
Bad debt is estimated at 10% on Net Accounts Receivables
1. Calculate Bad debt expense and Allowances for doubtful accounts
2. Calculate Net Realizable Value of Accounts Receivables
3. Prepare Journal Entries and Necessary Ledgers.

14. Question for Performance Test
2022 Particulars Amount
January-01: Accounts Receivables (Debit) 260,000
Allowance for doubtful expense (Credit) 4,000
February-15: Written off of Bad debt 8,000
October-08: Collection from debtors already written off 3,500
Year Closing: 30 June, 2022
Bad debt is estimated at 15% on Net Accounts Receivables
1. Calculate Bad debt expense and Allowances for doubtful accounts as of 30 June
2. Calculate Net Realizable Value of Accounts Receivables
3. Prepare Journal Entries and Necessary Ledgers.