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Chapter 5

COMMERCE 1AA3 Chapter Notes - Chapter 5: Accounts Receivable, Income Statement

Course Code
Aadil Merali Juma

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Monetary claims by others acquired mainly by:
o Accounts receivables selling of goods and services
o Notes receivables lending of money
A down side is some people cannot pay uncollectible-account expense
Bad Debt Expense
Cost to seller of extending credit and arises from failure to collect money
Aka uncollectible-account expense/doubtful account-expense
Accounting for bad debts
o Direct write-off method
o Allowance method
Direct Write-off Method
Assumes all accounts receivables are collectible
Recognizes bad debts expense when accounts receivable determined to be uncollected
o Bad Debt Expense xxx
Accounts Receivable xxx (written off)
Allowance Method
Recognizes bad debt expense when accounts receivable estimated to be uncollected
Amount of accounts receivable not collected is called:
o Allowance for uncollectible accounts/doubtful accounts/bad debts
Bad Debt Expense xxx
Allowance for Uncollectible Accounts xxx
Reports accounts receivable at not realizable value:
o Accounts receivable allowance for uncollectible accounts
Reporting on Balance Sheet:
o Accounts Receivable xxx
Allowance for doubtful accounts (xxx)
Net Accounts Receivable xxx
End of year adjusting entry:
o Bad Debt Expense xxx
Allowance for Uncollectible Accounts xxx
Writing of accounts receivable
o Allowance for Uncollectible Accounts xxx
Accounts Receivable xxx
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