The document discusses accounts receivable, bad debts, and the allowance method for estimating uncollectible accounts receivable. It defines accounts receivable as amounts owed to a company for goods or services sold on credit. It explains that when accounts become uncollectible, a bad debt expense is recorded. The allowance method estimates the amount of accounts receivable that will be uncollectible and records that amount in an allowance for doubtful accounts contra-asset account rather than directly writing off specific receivables.

1. Quick Books Course

2.  A receivable is a company’s claims for money,
goods, or services.
 An account receivable is classified as a current
asset representing money due for services
performed or merchandise sold on credit.
 When an account becomes uncollectible, a bad
debt expense is incurred.

3. Example: Accounts Receivable
Assume merchandise is sold on account for
Rs10,000. The terms of the agreement were, n/30.
The entries are as follows:

4. Example: Accounts Receivable
Credit Sale: Dr Cr
12600 Accounts Receivable 10,000
42600 Sales Revenue 10,000
Assume merchandise is sold on account for
Rs.10,000.
The entries are as follows:

5. Some receivables will never be
collected and must be written off
as uncollectible.

6.  Occurs when customers do not pay for items or
services purchased on credit.
 Bad Debts are uncollectible accounts
receivables.
 The uncollectible expense is placed on the
income statement as a selling expense.

7. Direct Method
Or:
•Allowance Method

8. Under the
Allowance Method
• We presume some invoices will not
be good . . .
• We just don’t know which ones.
Invoice
ABC Inc. $
If We Have
Rs1,000,000 in A/R

9. Allowance Method
ESTIMATE the
amount, but don’t
remove any invoices
from A/R
How do we write off an unknown
amount of Accounts Receivable?

10. An estimate 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

11. An estimate 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

12. Dr. Cr.
Bad Debt Expense 2000
Allowance for Doubtful Accounts 2000
To record estimated bad debts
Allowance Method

13. (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.
Allowance Method

14. Reverse Write Off:
Accounts Receivable 500
Allowance for Doubtful Accounts 500
To reinstate a written-off receivable.

15.  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
each account receivable by the number of days
it has been outstanding.

16. Example: Bad Debt Expense
The ABC company had credit sales of Rs100,000. The
current accounts receivable balance is Rs3,5100. The
allowance for doubtful accounts balance is Rs350.
Historically, 10 percent of the accounts receivable ending
balance is not collected.

17. The XYZ Company had credit sales during the year of
Rs200,000. Using the Aging Method, determine the
journal entry needed. The beginning balance for the
Allowance for Doubtful accounts is Rs150.
Example 2: Bad Debt Expense
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

18.  A written promise that allows someone to pay a
certain amount of money on or before a
specific future date.
 Notes are classified as current or long-term
assets, depending on the due date.

19.  Maker--The individual who signs the note and
assumes responsibility.
 Payee--The person to whom payment is made.
 Principal--The face amount of the note.
 Maturity Date--The date the note becomes due.
 Interest Rate--Annualized percentage of the
principal the maker is charged to borrow money.
 Interest--The cost of borrowing money.
Notes Receivable -- Components

20. Principal
(amount)
Interest
Rate (%)
Time
(years)
Interest
Owed
X X
Equals
Computing Interest

21.  Receivables are sold to banks or financial
institution for cash.
 The banks companies pay cash at discounted
rate as a percentage of the receivable.
 Factoring allows companies to receive cash
now, instead of waiting to collect on the
receivable.