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GLENCOE / McGraw-Hill. Accounts Receivable and Uncollectible Accounts. Accounting for Uncollectible Accounts. Section Objectives. Write off uncollectible accounts after estimated losses have been recorded.
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Accounts Receivable and Uncollectible Accounts
Accounting for Uncollectible Accounts Section Objectives • Write off uncollectible accounts after estimated losses have been recorded. • Record the collection of accounts previously written off using the direct charge-off and allowance methods. • Properly classify accounts receivable on the financial statements.
Page 561 Recording Actual Uncollectible Accounts Under the Allowance Method
Page 561 Recall that under the allowance method, an estimate of uncollectible accounts expense was already recorded. Allowance for Doubtful Accounts Uncollectible Accounts Expense XX XX No specific accounts were identified as uncollectible.
Page 561 Suppose that the account of Martin Zellner ($98) is determined to be uncollectible.
Page 561 Recording an Actual Uncollectible Account Which account is credited? Which account is debited? For what amount? For what amount?
Page 561 Recording an Actual Uncollectible Account Accounts Receivable Allowance for Doubtful Accounts 98 98
Page 561 Accounts Receivable Subsidiary Ledger Martin Zellner’s individual account in the accounts receivable ledger is written off.
QUESTION: What effect does the write off of a specific account have on the financial statements? ANSWER: The write off has no effect on the financial statements because the expense was recorded previously. Page 561
Income Statement Balance Sheet Page 561 Writing Off a Specific Account No effect on net income Assets Contra assets No effect on net equity
Page 562 Collecting an Account That Was Written Off
Page 562 Occasionally an account that was written off is later collected. Two entries are necessary: 1. Reinstate the account receivable. 2. Record the collection of cash.
QUESTION: What does it mean to reinstate an account receivable? ANSWER: To reinstate an account receivable means to put back or restore an amount that was previously written off. Page 562
20-- Jan. 2 Accounts Receivable/Tony Peterson 380.00 Uncollectible Accounts Expense 380.00 To reinstate the account receivable for Tony Peterson that was written off and then collected in full Page 562 Reinstating an Account Written Off Using the Direct Charge-Off Method
20-- Aug.19 Accounts Receivable/Martin Zellner 98.00 Allowance for Doubtful Accounts 98.00 To reinstate the account receivable for Martin Zellner that was written off and then collected in full Page 562 Reinstating an Account Written Off Using the Allowance Method
Page 564 Classifying Accounts Receivable on Financial Statements
Page 564 The Balance Sheet The allowance for doubtful accounts appears in the Current Assets section of the balance sheet. The balance sheet reports thenet value of accounts receivable.
QUESTION: What is “net value of accounts receivable”? ANSWER: Net value of accounts receivable is the difference between the Accounts Receivable account and the Allowance for Doubtful Accounts account. Page 564
Page 564 The Income Statement • Uncollectible accounts expense is usually classified as an operating expense. • Sometimes it is classified as a selling expense if the sales department is responsible for granting credit.
Page 565 Internal Control of Accounts Receivable
Page 565 Internal Control of Accounts Receivable • Authorization of all credit sales • Procedures to properly record sales • Separation of duties • Invoices and monthly statements
Page 565 Internal Control of Accounts Receivable • Aging of accounts receivable • Investigation of past due accounts • Written approval of all write-offs • Continued efforts to collect written-off accounts
R E V I E W Complete the following sentences: Under the allowance method, the write off of a specific account includes a ____ to Allowance for Doubtful Accounts. debit The collection of an account that was previously written off requires ___ entries. two reinstate To ________ an account receivable means to put back or restore an account that was previously written off.
R E V I E W Complete the following sentences: Uncollectible accounts expense is usually classified as a(n) ________ expense. operating net value The balance sheet reports the ________ of accounts receivable. Internal control of accounts receivable requires separation of ______. duties
Thank You for using College Accounting, Tenth Edition Price • Haddock • Brock
