1. LESSON 17-1 Uncollectible Accounts
12/22/2017
LESSON 17-1
Uncollectible Accounts
Original created by M.C. McLaughlin, Thomson/South-Western
Modified by Deborah L. Burns, Johnston County Schools, West Johnston High School

2. ESTIMATING AND RECORDING UNCOLLECTIBLE ACCOUNTS EXPENSE
page 514
A business sells on account to encourage sales.
Before selling to a customer on account, management should perform a thorough credit check on a customer
Unfortunately, some customers may later become unable or unwilling to pay their account
Accounts receivable that cannot be collected are known as uncollectible accounts
Uncollectible accounts must be recorded as an expense
LESSON 17-1

3. ESTIMATING AND RECORDING UNCOLLECTIBLE ACCOUNTS EXPENSE
page 515
The allowance method of recording losses from uncollectible accounts attempts to match the expense of uncollectible accounts in the same fiscal year the related sales are recorded.
Estimated Uncollectible Accounts Expense =
Percentage ×
Total Sales on Account
$1,287,330.00 ×
1.0% =
$12,873.30
At the end of the fiscal year, the business does not know which specific accounts will become uncollectible.
An estimate of the uncollectible accounts is recorded to the contra asset account Allowance for Uncollectible Accounts
The percentage used is based on previous years’ history with uncollectible accounts.
LESSON 17-1

4. ANALYZING AND JOURNALIZING AN ADJUSTMENT FOR UNCOLLECTIBLE ACCOUNTS EXPENSE
page 516
At the end of the fiscal period, an adjustment for uncollectible accounts expense is planned on a work sheet. 1 3 2
1. Enter and label credit amount.
2. Enter and label debit amount.
3. Record adjusting entry.
If the allowance account has a previous credit balance, the amount of the adjustment is added to the previous balance
LESSON 17-1

5. POSTING AN ADJUSTING ENTRY FOR UNCOLLECTIBLE ACCOUNTS EXPENSE
page 517
The adjustment for uncollectible accounts expense planned on the work sheet is recorded as an adjusting entry in the general journal
1. Debit
2. Credit 1 2
The adjusting entry is then posted to the general ledger
The adjusting entry does not affect the balance of Accounts Receivable
LESSON 17-1

6. Writing Off an Uncollectible Account Using the Direct Write-Off Method
The direct write-off method is used primarily by small businesses and those with few charge customers.
An adjustment is not made at the end of the fiscal period.
When the business determines that the amount owed by an individual customer is not going to be paid, that uncollectible account is removed from the accounting records.
The direct write-off method is the only method a business can use for income tax purposes.
LESSON 17-1

7. Procedure for Journalizing Uncollectible Accounts Using the Direct-Write Off Method
June 12: Mountain Sports Gear sold hiking equipment on account to Scott Smith for $ a year ago. Mountain Sports Gear has been unable to collect this amount over the past year. It becomes apparent that Scott Smith is not going to pay the $
Uncollectible Accounts Expense
Accounts Receivable/Scott Smith
LESSON 17-1