Business Administration 2257 Chapter Notes -Current Asset, Accounts Receivable
28 Feb 2014
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E: e8-3: a) a4da: a contra-asset account that records the portion of a company"s receivables, which it expects may not be collected. It"s estimated based on historical trends, of how much a company believes will be uncollectible. It can be estimated in a number of different ways such as percentage of sales, or by setting up a receivables aging schedule. Purpose: companies predict the amount of receivables from customers that won"t be received. This is to anticipate and safeguard the business by creating a cushion for bad debt expenses; creating a comfortable scenario of customer payables that are not unpaid. b) Allowance for doubtful accounts (a4da) has a normal credit balance as it is a contra asset: Two separate journal entries are needed: first, the business must reinstate the customer"s account by reversing the write-off process. Next, the collection can be recorded like any other cash collection:
