1. Accounting for Uncollectible Accounts Receivables
Chapter 17
Accounting I/II

2. Section 1 – Uncollectible Accounts

3. Why sell on account? Encourage sales Uncollectible account (bad debt)
Check credit history
Uncollectible account (bad debt)
Expense to business
Two ways to handle uncollectible accounts
Allowance Method
Direct Write-Off Method
*We will focus on the Allowance Method*

4. Allowance Method CONCEPT: Matching Expenses with Revenue
Meets two objectives:
Assets not overstated on Balance Sheet
Expenses not understated on Income Statement

5. Allowance Method (cont.)
Businesses estimate uncollectible accounts expense and record as an adjusting entry at the end of the period.
Two methods for estimating this expense
% of total sales on account
% of net sales

6. Total sales on account * Percentage
Percent of Sales
% of total sales
Total sales on account * Percentage
% of net sales
Net sales * Percentage
Net Sales = Sales – (Sales Discount + Sales Returns & Allowances)

7. Recording Adjusting Entry
Debit: Uncollectible Accounts Expense
Credit: Allowance for Uncollectible Accounts
**Contra-asset account to Accounts Receivable
Book Value of Accounts Receivable
Amount business can reasonably expect to receive from all accounts receivable
Accts Rec – Allowance for Uncollectible Accts

8. Analyzing and Recording an Adjustment for Uncollectible Accounts Receivable1 3 2
1. Enter and label credit amount.
2. Enter and label debit amount.
3. Record adjusting entry.

9. Problems Complete the following on PAPER: Work Together 17-1
On Your Own 17-1
Application 17-1
Chapter 17 Study Guide

10. Section 2 – Writing Off and Collecting Uncollectible Accounts Receivable

11. Writing Off an Account
When an account has been labeled as uncollectible it must be written-off as an expense of the business.
Debit: Allowance for Uncollectible Accounts
Credit: Accounts Receivable/Customer
When posting, “Written Off” is recorded in the item column.

12. Journalizing Writing Off an Uncollectible Account
January 4. Wrote off Metro Food Court’s past-due account as uncollectible, $1, Memorandum No. 3. 1 2
1. Debit
2. Credit and customer’s name

13. Posting an Entry to Write Off an Uncollectible Account Receivable
1. Post the debit amount to general ledger.
2. Post the credit amount to general ledger. 1 2 3
3. Post the credit amount to customer account.
4. Write Written off in the customer account. 4

14. Customer Pays on a Written-Off Account
Must do two things:
Reopen account
Debit: Accounts Receivable/Customer
Credit: Allowance for Uncollectible Accounts
General Journal
When posting, “Reopen account” is recorded in the Item column.
Record payment
Debit: Cash
Credit: Accounts Receivable/Customer
Cash Receipts Journal

15. Reopening An Account Previously Written Off
January 30. Received cash in full payment of Metro Food Court’s account, previously written off as uncollectible, $1, Memorandum No. 5 and Receipt No. 12. 1 2
1. Enter a debit to Accounts Receivable. Place a diagonal line in the Post. Ref. column.
2. Enter a credit to Allowance for Uncollectible Accounts.

16. Recording Cash Received for an Account Previously Written Off
January 30. Received cash in full payment of Metro Food Court’s account, previously written off as uncollectible, $1, Memorandum No. 5 and Receipt No. 12.

17. Posting Entries for Collecting a Written-off Account Receivable
1. Post the general journal entry to the general ledger. 1 2
2. Post the debit portion of the general journal entry to the customer account.
3. Write the words Reopen account in the Item column of the customer account.
4. Post the cash receipts journal entry to the customer account. 3 4

18. Summary of Allowance Method
At the end of each fiscal period, uncollectible accounts expense is estimated and adjusting entry is recorded
Customer account is written off
If customer pays after writing off account
Reopen account
Record payment

19. Problems Complete the following on PAPER: Work Together 17-2
On Your Own 17-2
Application 17-2
Finish Chapter 17 Study Guide