Accounting for Uncollectible Accounting for Uncollectible Accounts ReceivableAccounts Receivable

Chapter 20 Chapter 20 Module 10Module 10

Chapter ObjectivesChapter Objectives

Estimating and Recording Estimating and Recording Uncollectible Accounts ExpenseUncollectible Accounts Expense

Writing Off and Collecting Writing Off and Collecting Uncollectible Accounts Uncollectible Accounts ReceivableReceivable

Uncollectible AccountsUncollectible Accounts

Not all customers are going to Not all customers are going to cooperatecooperate

Companies should do a Companies should do a thorough investigation of a thorough investigation of a customers credit accountcustomers credit account

Accounts not collected are Accounts not collected are considered delinquent accounts considered delinquent accounts or Uncollectible Accountsor Uncollectible Accounts

Never ProfitableNever Profitable

When you sell to a customer, When you sell to a customer, you are taking the risk that the you are taking the risk that the customer will not paycustomer will not pay

A business would be wise to A business would be wise to create an account for create an account for transactions such as thesetransactions such as these

Uncollectible Accounts Expense Uncollectible Accounts Expense and Allowance for Uncollectible and Allowance for Uncollectible Accounts are used.Accounts are used.

Estimated Uncollectible Estimated Uncollectible Accounts ExpenseAccounts Expense

To estimate the To estimate the amount a business amount a business should put aside should put aside for delinquent for delinquent accounts is accounts is estimated from estimated from passed years and passed years and condensed into a condensed into a low percentage low percentage valuevalue

Total Sales on Total Sales on AccountAccount

X (multiplied by)X (multiplied by)

Percentage Percentage EstimatedEstimated

(usually between 0 (usually between 0 and 5)and 5)

Writing OffWriting Off

When a When a customers customers account is account is considered considered uncollectible, uncollectible, the account is the account is written off.written off.

This Cancels the balance in the account as This Cancels the balance in the account as well as in the Accounts Receivable account.well as in the Accounts Receivable account.

ReopeningReopening

Sometimes a customer comes back Sometimes a customer comes back and honors a canceled accountand honors a canceled account

The account must be reopened and The account must be reopened and its amount deposited back into it so its amount deposited back into it so the customer can pay his credit.the customer can pay his credit.

Account AffectedAccount Affected

In most transactions only two In most transactions only two accounts are affectedaccounts are affected

With written off accounts and With written off accounts and reopened ones, there can be up reopened ones, there can be up to 3 to 3

Accounts ReceivableAccounts Receivable Customer AccountCustomer Account Allowance for Uncollectible Allowance for Uncollectible

AccountsAccounts