Accounting for Uncollectible Accounts Receivable Chapter 20 Module 10

Chapter Objectives Estimating and Recording Uncollectible Accounts Expense Estimating and Recording Uncollectible Accounts Expense Writing Off and Collecting Uncollectible Accounts Receivable Writing Off and Collecting Uncollectible Accounts Receivable

Uncollectible Accounts Not all customers are going to cooperate Not all customers are going to cooperate Companies should do a thorough investigation of a customers credit account Companies should do a thorough investigation of a customers credit account Accounts not collected are considered delinquent accounts or Uncollectible Accounts Accounts not collected are considered delinquent accounts or Uncollectible Accounts

Never Profitable When you sell to a customer, you are taking the risk that the customer will not pay When you sell to a customer, you are taking the risk that the customer will not pay A business would be wise to create an account for transactions such as these A business would be wise to create an account for transactions such as these Uncollectible Accounts Expense and Allowance for Uncollectible Accounts are used. Uncollectible Accounts Expense and Allowance for Uncollectible Accounts are used.

Estimated Uncollectible Accounts Expense To estimate the amount a business should put aside for delinquent accounts is estimated from passed years and condensed into a low percentage value To estimate the amount a business should put aside for delinquent accounts is estimated from passed years and condensed into a low percentage value Total Sales on Account X (multiplied by) Percentage Estimated (usually between 0 and 5)

Writing Off When a customers account is considered uncollectible, the account is written off. When a customers account is considered uncollectible, the account is written off. This Cancels the balance in the account as well as in the Accounts Receivable account.

Reopening Sometimes a customer comes back and honors a canceled account Sometimes a customer comes back and honors a canceled account The account must be reopened and its amount deposited back into it so the customer can pay his credit. The account must be reopened and its amount deposited back into it so the customer can pay his credit.

Account Affected In most transactions only two accounts are affected In most transactions only two accounts are affected With written off accounts and reopened ones, there can be up to 3 With written off accounts and reopened ones, there can be up to 3 Accounts Receivable Accounts Receivable Customer Account Customer Account Allowance for Uncollectible Accounts Allowance for Uncollectible Accounts