ACCT 2301 Lecture Notes - Lecture 8: Interest Rate, Current Asset, Accounts Receivable
Accounts receivable is the current asset resulting from a sale or service executed on a credit
basis -(no cash received at time of sales).
A/R 10000/ Sales rev 10000
Losses from Accts receivable:
Businesses extend credit in order to increase their volume of sales relative to a cash-only
policy. But ppl dnt always pay off their debit.
Credit losses are considered an operating expense and are debited to bad debt expense.
" Direct method"
Bad debit exp 100/ A/R 100
Allowance method: is recognizing bad debit exp in advance at time of rev recognition.
¡This is an example of the matching principle
+The estimate results in an adjusting entry to the contra-asset account Allowance for
Doubtful Accounts.
" Allowance method" DOEST AFFECT I/S UNLIKE DIRECT METHOD
Bad debit exp 100/ allowance 100
Reporting allowance for doubtful accts:
+The allowance for doubtful accounts is a contra-asset account with a normal credit balance.
+The allowance account is subtracted from gross accounts receivable to yield a net amount.
+Assume that Scripps Company has gross accounts receivable of $14,000
Current Assets
Cash $ 3,000
Accounts receivable $14,000
Less: Allowance for doubtful
accounts
5,000 9,000
Other current assets 1,000
Total Current Assets $13,000
Writing off special receivables:
+The company will write off a receivable when it is determined the amount will not be
collected.
+The write-off will not affect either expense or total assets, rather the entry simply cleans up
the accounts receivable account (the expense occurred at the time of the estimate, not at the
time of the write off).
+Assume $200 of the outstanding receivables is determined to be uncollectable
Allowance for doubtful accounts 200
Accounts receivable 200
To write off account deemed uncollectible.
"write off"
Allowance 200/ A/R 200
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Document Summary
Accounts receivable is the current asset resulting from a sale or service executed on a credit basis -(no cash received at time of sales). Businesses extend credit in order to increase their volume of sales relative to a cash-only policy. But ppl dnt always pay off their debit. Credit losses are considered an operating expense and are debited to bad debt expense. Allowance method: is recognizing bad debit exp in advance at time of rev recognition. This is an example of the matching principle. The estimate results in an adjusting entry to the contra-asset account allowance for. " allowance method" doest affect i/s unlike direct method. The allowance for doubtful accounts is a contra-asset account with a normal credit balance. The allowance account is subtracted from gross accounts receivable to yield a net amount. Assume that scripps company has gross accounts receivable of ,000.
