2. Copyright © 1999 by M. Ray Gregg. All rights reserved. 1 Receivables Uncollectible Accounts

3. Copyright © 1999 by M. Ray Gregg. All rights reserved. 2 Receivables Premise:

4. Copyright © 1999 by M. Ray Gregg. All rights reserved. 3 Receivables Premise: When you extend credit to customers…

5. Copyright © 1999 by M. Ray Gregg. All rights reserved. 4 Receivables Premise: When you extend credit to customers… you know some customers won’t pay.

6. Copyright © 1999 by M. Ray Gregg. All rights reserved. 5 Receivables Premise: When you extend credit to customers… you know some customers won’t pay. Solutions:

7. Copyright © 1999 by M. Ray Gregg. All rights reserved. 6 Receivables Premise: When you extend credit to customers… you know some customers won’t pay. Solutions: I.Notes Receivable and Interest

8. Copyright © 1999 by M. Ray Gregg. All rights reserved. 7 Premise: When you extend credit to customers… you know some customers won’t pay. Solutions: I.Notes Receivable and Interest II.Uncollectible Accounts Receivables

9. Copyright © 1999 by M. Ray Gregg. All rights reserved. 8 Receivables Premise: When you extend credit to customers… you know some customers won’t pay. Solutions: I.Notes Receivable and Interest II.Uncollectible Accounts Today

10. Copyright © 1999 by M. Ray Gregg. All rights reserved. 9 Receivables Premise: When you extend credit to customers… you know some customers won’t pay. Solutions: I.Notes Receivable and Interest II.Uncollectible Accounts Later

11. Copyright © 1999 by M. Ray Gregg. All rights reserved. 10 Uncollectible Accounts Doubtful Accounts Bad Debts

12. Copyright © 1999 by M. Ray Gregg. All rights reserved. 11 Allowance Direct Write-Off

13. Copyright © 1999 by M. Ray Gregg. All rights reserved. 12 Allowance Method Direct Write-Off Method Compare

14. Copyright © 1999 by M. Ray Gregg. All rights reserved. 13 Allowance Method Advance provision for estimate of accounts thought to be uncollectible

15. Copyright © 1999 by M. Ray Gregg. All rights reserved. 14 1/112/31 Total Sales

16. Copyright © 1999 by M. Ray Gregg. All rights reserved. 15 1/112/25 Total Sales

17. Copyright © 1999 by M. Ray Gregg. All rights reserved. 16 1/112/31 R

18. Copyright © 1999 by M. Ray Gregg. All rights reserved. 17 1/112/31 R 3/31 Our Company Our Address Our City, State Zip Our Customer Customer’s Address City, State Zip

19. Copyright © 1999 by M. Ray Gregg. All rights reserved. 18 1/1 R 4/30 Our Company Our Address Our City, State Zip Our Customer Customer’s Address City, State Zip 12/31

20. Copyright © 1999 by M. Ray Gregg. All rights reserved. 19 1/1 R 5/31 Our Company Our Address Our City, State Zip Our Customer Customer’s Address City, State Zip 12/31

21. Copyright © 1999 by M. Ray Gregg. All rights reserved. 20 1/1 R 5/31 Our Company Our Address Our City, State Zip Our Customer Customer’s Address City, State Zip E Is that matching? 12/31

22. Copyright © 1999 by M. Ray Gregg. All rights reserved. 21 1/1 R 5/31 Our Company Our Address Our City, State Zip Our Customer Customer’s Address City, State Zip E 12/31

23. Copyright © 1999 by M. Ray Gregg. All rights reserved. 22 Allowance Method Advance provision for estimate of accounts thought to be uncollectible A.Advantages 1.Provides better matching of expenses with time period I.S. Benefi t

24. Copyright © 1999 by M. Ray Gregg. All rights reserved. 23 Good Company Balance Sheet December 31, xxxx ASSETS Current Assets Cash$10,000 Accounts Receivable30,000 Merchandise Inventory40,000 Supplies3,000 Prepaid Insurance 7,000 Total Current Assets$90,000

25. Copyright © 1999 by M. Ray Gregg. All rights reserved. 24 Good Company Balance Sheet December 31, xxxx ASSETS Current Assets Cash$10,000 Accounts Receivable30,000 Merchandise Inventory40,000 Supplies3,000 Prepaid Insurance 7,000 Total Current Assets$90,000

26. Copyright © 1999 by M. Ray Gregg. All rights reserved. 25 Receivables Premise: When you extend credit to customers… you know some customers won’t pay.

27. Copyright © 1999 by M. Ray Gregg. All rights reserved. 26 Good Company Balance Sheet December 31, xxxx ASSETS Current Assets Cash$10,000 Accounts Receivable $30,000 Less: ??? ??? ? ? ? Merchandise Inventory40,000 Supplies3,000 Prepaid Insurance 7,000 Total Current Assets$90,000

28. Copyright © 1999 by M. Ray Gregg. All rights reserved. 27 Allowance Method Advance provision for estimate of accounts thought to be uncollectible A.Advantages 1.Provides better matching of expenses with time period 2.Reduces value of receivables to the amount of cash ex- pected to be collected

29. Copyright © 1999 by M. Ray Gregg. All rights reserved. 28 Allowance Method Advance provision for estimate of accounts thought to be uncollectible A.Advantages 1.Provides better matching of expenses with time period 2.Reduces value of receivables to the amount of cash ex- pected to be collected I.S. Benefi t B.S. Benefit How ?

30. Copyright © 1999 by M. Ray Gregg. All rights reserved. 29 Allowance Method B.Provision for estimate at year end:

31. Copyright © 1999 by M. Ray Gregg. All rights reserved. 30 Allowance Method B.Provision for estimate at year end: What kind of an account is Allowance for Doubtful Accounts? Bad Debts Expense est Allow for Doubtful Acctsest B.S. Benefit I.S. Benefit

32. Copyright © 1999 by M. Ray Gregg. All rights reserved. 31 Good Company Balance Sheet December 31, xxxx ASSETS Current Assets Cash$10,000 Accounts Receivable $30,000 Less: Allow for D. A. 3,00027,000 Merchandise Inventory40,000 Supplies3,000 Prepaid Insurance 7,000 Total Current Assets$87,000 What kind of an account is Allowance for Doubtful Accounts?

33. Copyright © 1999 by M. Ray Gregg. All rights reserved. 32 Allowance Method B.Provision for estimate at year end: What kind of an account is Allowance for Doubtful Accounts? Bad Debts Expense est Allow for Doubtful Acctsest Contra Asset or Contra Receivables

34. Copyright © 1999 by M. Ray Gregg. All rights reserved. 33 Allowance Method B.Provision for estimate at year end: Why use a contra account? Bad Debts Expense est Allow for Doubtful Acctsest Accounts Receivable

35. Copyright © 1999 by M. Ray Gregg. All rights reserved. 34 Allowance Method B.Provision for estimate at year end: Why use a contra account? Bad Debts Expense est Allow for Doubtful Acctsest Do not know which customers will not pay -- using subsidiary ledger.

36. Copyright © 1999 by M. Ray Gregg. All rights reserved. 35 Good Company Balance Sheet December 31, xxxx ASSETS Current Assets Cash$10,000 Accounts Receivable $30,000 Less: Allow for D. A. 3,00027,000 Merchandise Inventory40,000 Supplies3,000 Prepaid Insurance 7,000 Total Current Assets$87,000 “Cash Realizable Value”

37. Copyright © 1999 by M. Ray Gregg. All rights reserved. 36 Allowance Method B.Provision for estimate at year end: Bad Debts Expense est Allow for Doubtful Acctsest

38. Copyright © 1999 by M. Ray Gregg. All rights reserved. 37 Allowance Method C.Estimate may be based on: 1.Revenue 2.Receivables I.S. View B.S. View

39. Copyright © 1999 by M. Ray Gregg. All rights reserved. 38 debit Bad Debts Expense to write off an account direct write off Method allowance year-end AJE revenue receivables % x total sales % x sales on account % x bal. of A/Rec. aging results consider bal. of allowance acct Uncollectible Accounts

40. Copyright © 1999 by M. Ray Gregg. All rights reserved. 39 debit Bad Debts Expense to write off an account direct write off Method allowance year-end AJE revenue receivables % x total sales % x sales on account % x bal. of A/Rec. aging results consider bal. of allowance acct Uncollectible Accounts

41. Copyright © 1999 by M. Ray Gregg. All rights reserved. 40 debit Bad Debts Expense to write off an account direct write off Method allowance year-end AJE revenue receivables % x total sales % x sales on account % x bal. of A/Rec. aging results consider bal. of allowance acct Uncollectible Accounts

42. Copyright © 1999 by M. Ray Gregg. All rights reserved. 41 debit Bad Debts Expense to write off an account direct write off Method allowance year-end AJE revenue receivables % x total sales % x sales on account % x bal. of A/Rec. aging results consider bal. of allowance acct Uncollectible Accounts

43. Copyright © 1999 by M. Ray Gregg. All rights reserved. 42 debit Bad Debts Expense to write off an account direct write off Method allowance year-end AJE revenue receivables % x total sales % x sales on account % x bal. of A/Rec. aging results consider bal. of allowance acct Uncollectible Accounts

44. Copyright © 1999 by M. Ray Gregg. All rights reserved. 43 debit Bad Debts Expense to write off an account direct write off Method allowance year-end AJE revenue receivables % x total sales % x sales on account % x bal. of A/Rec. aging results consider bal. of allowance acct Uncollectible Accounts

45. Copyright © 1999 by M. Ray Gregg. All rights reserved. 44 debit Bad Debts Expense to write off an account direct write off Method allowance year-end AJE revenue receivables % x total sales % x sales on account % x bal. of A/Rec. aging results consider bal. of allowance acct Uncollectible Accounts

46. Copyright © 1999 by M. Ray Gregg. All rights reserved. 45 debit Bad Debts Expense to write off an account direct write off Method allowance year-end AJE revenue receivables % x total sales % x sales on account % x bal. of A/Rec. aging results consider bal. of allowance acct Uncollectible Accounts

47. Copyright © 1999 by M. Ray Gregg. All rights reserved. 46 debit Bad Debts Expense to write off an account direct write off Method allowance year-end AJE revenue receivables % x total sales % x sales on account % x bal. of A/Rec. aging results consider bal. of allowance acct Uncollectible Accounts

48. Copyright © 1999 by M. Ray Gregg. All rights reserved. 47 Example of Aging AgeEstimate Less than 30 days98% 30 – 60 days85% 60 – 90 days70% 90 – 120 days50% Over 120 days25%

49. Copyright © 1999 by M. Ray Gregg. All rights reserved. 48 debit Bad Debts Expense to write off an account direct write off Method allowance year-end AJE revenue receivables % x total sales % x sales on account % x bal. of A/Rec. aging results consider bal. of allowance acct Uncollectible Accounts consider bal. of allowance account

50. Copyright © 1999 by M. Ray Gregg. All rights reserved. 49 debit Bad Debts Expense to write off an account direct write off Method allowance year-end AJE revenue receivables % x total sales % x sales on account % x bal. of A/Rec. aging results consider bal. of allowance acct Uncollectible Accounts Income Statement View

51. Copyright © 1999 by M. Ray Gregg. All rights reserved. 50 debit Bad Debts Expense to write off an account direct write off Method allowance year-end AJE revenue receivables % x total sales % x sales on account % x bal. of A/Rec. aging results consider bal. of allowance acct Uncollectible Accounts Balance Sheet View

52. Copyright © 1999 by M. Ray Gregg. All rights reserved. 51 debit Bad Debts Expense to write off an account direct write off Method allowance year-end AJE revenue receivables % x total sales % x sales on account % x bal. of A/Rec. aging results consider bal. of allowance acct Uncollectible Accounts

53. Copyright © 1999 by M. Ray Gregg. All rights reserved. 52 Allowance Method C.Estimate may be based on: 1.Revenue (I.S. view) 2.Receivables (B.S. view) D.Write off an account: Allow for Doubtful Accts bal Accts Rec - Customerbal

54. Copyright © 1999 by M. Ray Gregg. All rights reserved. 53 Allowance Method C.Estimate may be based on: 1.Revenue (I.S. view) 2.Receivables (B.S. view) D.Write off an account: Allow for Doubtful Accts bal Accts Rec - Customerbal E.Reinstate if collected: Accts Rec - Customer col Allow for Doubtful Accts col record cash collection as usual

55. Copyright © 1999 by M. Ray Gregg. All rights reserved. 54 Direct Write-Off Method Expense recognized when account determined to be worthless

56. Copyright © 1999 by M. Ray Gregg. All rights reserved. 55 1/1 R 5/31 Our Company Our Address Our City, State Zip Our Customer Customer’s Address City, State Zip E 12/31

57. Copyright © 1999 by M. Ray Gregg. All rights reserved. 56 Direct Write-Off Method Expense recognized when account determined to be worthless A.Advantage:simplicity B.No AJE at year end C.No estimate

58. Copyright © 1999 by M. Ray Gregg. All rights reserved. 57 Direct Write-Off Method D.Write off an account: Bad Debts Expense bal Accts Rec - Customerbal

59. Copyright © 1999 by M. Ray Gregg. All rights reserved. 58 debit Bad Debts Expense to write off an account direct write off Method allowance year-end AJE revenue receivables % x total sales % x sales on account % x bal. of A/Rec. aging results consider bal. of allowance acct Uncollectible Accounts

60. Copyright © 1999 by M. Ray Gregg. All rights reserved. 59 Direct Write-Off Method D.Write off an account: Bad Debts Expense bal Accts Rec - Customerbal E.Reinstate if collected: Accts Rec - Customer col Bad Debts Expensecol record cash collection as usual

61. Copyright © 1999 by M. Ray Gregg. All rights reserved. 60 Practice Exercise The ledger of Kadler Company at the end of the current year shows Accounts Receivable $90,000, Sales $840,000, and Sales Returns and Allowances $40,000. a.If Allowance for Doubtful Accounts has a credit balance of $800 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 1% of net sales.

62. Copyright © 1999 by M. Ray Gregg. All rights reserved. 61 Practice Exercise The ledger of Kadler Company at the end of the current year shows Accounts Receivable $90,000, Sales $840,000, and Sales Returns and Allowances $40,000. a.If Allowance for Doubtful Accounts has a credit balance of $800 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 1% of net sales. Bad Debts Expense est Allow for Doubtful Acctsest How much?

63. Copyright © 1999 by M. Ray Gregg. All rights reserved. 62 Practice Exercise The ledger of Kadler Company at the end of the current year shows Accounts Receivable $90,000, Sales $840,000, and Sales Returns and Allowances $40,000. a.If Allowance for Doubtful Accounts has a credit balance of $800 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 1% of net sales. Bad Debts Expense est Allow for Doubtful Acctsest

64. Copyright © 1999 by M. Ray Gregg. All rights reserved. 63 Practice Exercise The ledger of Kadler Company at the end of the current year shows Accounts Receivable $90,000, Sales $840,000, and Sales Returns and Allowances $40,000. a.If Allowance for Doubtful Accounts has a credit balance of $800 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 1% of net sales. Bad Debts Expense est Allow for Doubtful Acctsest

65. Copyright © 1999 by M. Ray Gregg. All rights reserved. 64 Practice Exercise The ledger of Kadler Company at the end of the current year shows Accounts Receivable $90,000, Sales $840,000, and Sales Returns and Allowances $40,000. Good Choices: $8,800 ($8,000 + $800) $8,000 (1% x $800,000) $7,200 ($8,000 - $800)

66. Copyright © 1999 by M. Ray Gregg. All rights reserved. 65 Practice Exercise The ledger of Kadler Company at the end of the current year shows Accounts Receivable $90,000, Sales $840,000, and Sales Returns and Allowances $40,000. a.If Allowance for Doubtful Accounts has a credit balance of $800 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 1% of net sales. Bad Debts Expense 8,000 Allow for Doubtful Accts 8,000 Why ?

67. Copyright © 1999 by M. Ray Gregg. All rights reserved. 66 debit Bad Debts Expense to write off an account direct write off Method allowance year-end AJE revenue receivables % x total sales % x sales on account % x bal. of A/Rec. aging results consider bal. of allowance acct Uncollectible Accounts consider bal. of Allowance account

68. Copyright © 1999 by M. Ray Gregg. All rights reserved. 67 debit Bad Debts Expense to write off an account direct write off Method allowance year-end AJE revenue receivables % x total sales % x sales on account % x bal. of A/Rec. aging results consider bal. of allowance acct Uncollectible Accounts Income Statement View

69. Copyright © 1999 by M. Ray Gregg. All rights reserved. 68 Practice Exercise The ledger of Kadler Company at the end of the current year shows Accounts Receivable $90,000, Sales $840,000, and Sales Returns and Allowances $40,000. a.If Allowance for Doubtful Accounts has a credit balance of $800 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (2) 10% of accounts receivable. Bad Debts Expense est Allow for Doubtful Acctsest

70. Copyright © 1999 by M. Ray Gregg. All rights reserved. 69 Practice Exercise The ledger of Kadler Company at the end of the current year shows Accounts Receivable $90,000, Sales $840,000, and Sales Returns and Allowances $40,000. a.If Allowance for Doubtful Accounts has a credit balance of $800 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (2) 10% of accounts receivable. Bad Debts Expense est Allow for Doubtful Acctsest

71. Copyright © 1999 by M. Ray Gregg. All rights reserved. 70 Practice Exercise The ledger of Kadler Company at the end of the current year shows Accounts Receivable $90,000, Sales $840,000, and Sales Returns and Allowances $40,000. Good Choices: $9,800 ($9,000 + $800) $9,000 ($90,000 x 10%) $8,200 ($9,000 - $800) … and the winner is???

72. Copyright © 1999 by M. Ray Gregg. All rights reserved. 71 Practice Exercise The ledger of Kadler Company at the end of the current year shows Accounts Receivable $90,000, Sales $840,000, and Sales Returns and Allowances $40,000. a.If Allowance for Doubtful Accounts has a credit balance of $800 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (2) 10% of accounts receivable. Bad Debts Expense 8,200 Allow for Doubtful Accts 8,200

73. Copyright © 1999 by M. Ray Gregg. All rights reserved. 72 debit Bad Debts Expense to write off an account direct write off Method allowance year-end AJE revenue receivables % x total sales % x sales on account % x bal. of A/Rec. aging results consider bal. of allowance acct Uncollectible Accounts consider bal. of Allowance account

74. Copyright © 1999 by M. Ray Gregg. All rights reserved. 73 debit Bad Debts Expense to write off an account direct write off Method allowance year-end AJE revenue receivables % x total sales % x sales on account % x bal. of A/Rec. aging results consider bal. of allowance acct Uncollectible Accounts Balance Sheet View

75. Copyright © 1999 by M. Ray Gregg. All rights reserved. 74 Practice Exercise The ledger of Kadler Company at the end of the current year shows Accounts Receivable $90,000, Sales $840,000, and Sales Returns and Allowances $40,000. b.If Allowance for Doubtful Accounts has a debit balance of $500 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1).75% of net sales.

76. Copyright © 1999 by M. Ray Gregg. All rights reserved. 75 Practice Exercise The ledger of Kadler Company at the end of the current year shows Accounts Receivable $90,000, Sales $840,000, and Sales Returns and Allowances $40,000. b.If Allowance for Doubtful Accounts has a debit balance of $500 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1).75% of net sales.

77. Copyright © 1999 by M. Ray Gregg. All rights reserved. 76 Practice Exercise The ledger of Kadler Company at the end of the current year shows Accounts Receivable $90,000, Sales $840,000, and Sales Returns and Allowances $40,000. b.If Allowance for Doubtful Accounts has a debit balance of $500 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1).75% of net sales.

78. Copyright © 1999 by M. Ray Gregg. All rights reserved. 77 Practice Exercise The ledger of Kadler Company at the end of the current year shows Accounts Receivable $90,000, Sales $840,000, and Sales Returns and Allowances $40,000. b.If Allowance for Doubtful Accounts has a debit balance of $500 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1).75% of net sales.

79. Copyright © 1999 by M. Ray Gregg. All rights reserved. 78 Practice Exercise The ledger of Kadler Company at the end of the current year shows Accounts Receivable $90,000, Sales $840,000, and Sales Returns and Allowances $40,000. Good Choices: $5,500 ($6,000 - $500) $6,000 (.75% x $800,000) $6,500 ($6,000 + $500) What do YOU think?

80. Copyright © 1999 by M. Ray Gregg. All rights reserved. 79 Practice Exercise The ledger of Kadler Company at the end of the current year shows Accounts Receivable $90,000, Sales $840,000, and Sales Returns and Allowances $40,000. b.If Allowance for Doubtful Accounts has a debit balance of $500 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1).75% of net sales. Bad Debts Expense 6,000 Allow for Doubtful Accts 6,000

81. Copyright © 1999 by M. Ray Gregg. All rights reserved. 80 Practice Exercise The ledger of Kadler Company at the end of the current year shows Accounts Receivable $90,000, Sales $840,000, and Sales Returns and Allowances $40,000. b.If Allowance for Doubtful Accounts has a debit balance of $500 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (2) 8% of accounts receivable.

82. Copyright © 1999 by M. Ray Gregg. All rights reserved. 81 Practice Exercise The ledger of Kadler Company at the end of the current year shows Accounts Receivable $90,000, Sales $840,000, and Sales Returns and Allowances $40,000. b.If Allowance for Doubtful Accounts has a debit balance of $500 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (2) 8% of accounts receivable.

83. Copyright © 1999 by M. Ray Gregg. All rights reserved. 82 Practice Exercise The ledger of Kadler Company at the end of the current year shows Accounts Receivable $90,000, Sales $840,000, and Sales Returns and Allowances $40,000. Good Choices: $6,700 ($7,200 - $500) $7,200 (8% x $90,000) $7,700 ($7,200 + $500) Are you ready?

84. Copyright © 1999 by M. Ray Gregg. All rights reserved. 83 Practice Exercise The ledger of Kadler Company at the end of the current year shows Accounts Receivable $90,000, Sales $840,000, and Sales Returns and Allowances $40,000. b.If Allowance for Doubtful Accounts has a debit balance of $500 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (2) 8% of accounts receivable. Bad Debts Expense 7,700 Allow for Doubtful Accts 7,700 Yeah !!!

85. Copyright © 1999 by M. Ray Gregg. All rights reserved. 84 Receivables