accounting for uncollectible accounts receivable chapter 20
TRANSCRIPT
Accounting for Uncollectible Accounting for Uncollectible Accounts ReceivableAccounts Receivable
Chapter 20Chapter 20
Uncollectible AccountUncollectible Account
What is it?What is it? An account that has defaulted (not An account that has defaulted (not
paid) on what is owed to you…paid) on what is owed to you… What do you do?What do you do?
1.1. Either keep it on your books and hope that Either keep it on your books and hope that it is paid it is paid
2.2. Close the account outClose the account out1.1. Usually then we turn it over to a collection Usually then we turn it over to a collection
agencyagency
Terms that you need to know.Terms that you need to know.
Accounts ReceivableAccounts Receivable That account that we have used all year That account that we have used all year
long when someone buys something long when someone buys something from us on account.from us on account.
Allowance for Uncollectible AccountsAllowance for Uncollectible Accounts Contra account for Accounts ReceivableContra account for Accounts Receivable The balance in this account reduces the The balance in this account reduces the
amount of accounts receivableamount of accounts receivable We agree that there will be a certain amount We agree that there will be a certain amount
of accounts that will not be paid. of accounts that will not be paid.
Allowance method of recording Allowance method of recording losses from uncollectible accountslosses from uncollectible accounts When we use the allowance for When we use the allowance for
uncollectible accounts accountuncollectible accounts account Book ValueBook Value
The difference between an asset’s The difference between an asset’s account balance and its related contra account balance and its related contra account balance is its book value.account balance is its book value.
Car exampleCar example
More terms that you need to know.More terms that you need to know.
Book value of accounts receivableBook value of accounts receivable The difference between accounts receivable The difference between accounts receivable
and its contra accountand its contra account Estimating uncollectible accounts expenseEstimating uncollectible accounts expense
Doesn't it make sense that we assume a Doesn't it make sense that we assume a portion of our accounts receivable will be portion of our accounts receivable will be uncollected?uncollected?
So we estimate a number, that a portion of our So we estimate a number, that a portion of our sales on account will be uncollectible. We get sales on account will be uncollectible. We get that percentage either from prior years or what that percentage either from prior years or what the industry average is…..the industry average is…..
Total Sales on Account X Percentage = Estimated Uncollectible Total Sales on Account X Percentage = Estimated Uncollectible Accounts Accounts ExpenseExpense
982800982800 xx 1%1% 9828.009828.00
We assume that 9828.00 additional will not be collected. We would We assume that 9828.00 additional will not be collected. We would add that to the actual amount that has not been collected and that add that to the actual amount that has not been collected and that would give us our total of uncollectible. would give us our total of uncollectible.
The 9828 is an adjustment that goes on the worksheet adjustment The 9828 is an adjustment that goes on the worksheet adjustment column, and is journalized and posted just like the other column, and is journalized and posted just like the other adjustments. adjustments.
Please work on On Your Own on page Please work on On Your Own on page 532532
Writing off and collecting accounts Writing off and collecting accounts receivable. receivable.
Once we determine that an account will not be Once we determine that an account will not be collected. We need to write that account off.collected. We need to write that account off.
Here is how you need to think of it. When we Here is how you need to think of it. When we first put the sale on our books we increased first put the sale on our books we increased our Accounts Receivable, and increased our our Accounts Receivable, and increased our sales. sales.
Now that it is uncollectible we need to Now that it is uncollectible we need to decrease our Accounts receivable by writing it decrease our Accounts receivable by writing it off, and using the contra account Allowance off, and using the contra account Allowance for Uncollectible accounts to decrease our for Uncollectible accounts to decrease our sales account. This is called writing off the sales account. This is called writing off the account.account.
General Journal Page 1
Date Account Title Doc No Post Ref Debit Credit
Dec 3 Allow. For Uncollectible Accounts M2 462
Accts. Rec./ Ryan Recreation 462
December 3 Wrote off Ryan Recreation’s past due account as uncollectible, $462.00 Memorandum No. 2
Remember that we must post these in the appropriate General ledger accounts As well….Please look at page 534 in textbook
What happens if we receive money What happens if we receive money from an account that was from an account that was
previously written off?previously written off?January 29. Received cash in full payment of Ryan Recreation’s account, previously written off as uncollectible. $462.00. Memorandum No. 3 and Receipt No. 8.
Cash Receipts Journal
Date Account Title DocPostRef
GeneralA/R
CreditSales Credit
Sales Tax Payable
SalesDiscou
ntDebit
CashDebitDebit Credit Debit Credit
Jan2
9RyanRecreational R8 462 462
Step one: Record the cash that we received from the payment of the Accounts Rec.
Step two: is to fix the Account Receivable and put it back on the books as a receivable instead of a uncollectible.
So we have to write it out of the uncollectible accounts account, and put it back onto the accounts receivable.
General Journal
Date Account Title Doc No Post Ref Debit Credit
Jan 29 Accts/ Receivable/ Ryan Recreation M3 462
Allowance for Uncollectible Accts 462
Here is the work!!!!!!Here is the work!!!!!!
Problems 20-1,2,3Problems 20-1,2,3 Computer Problem 20-4Computer Problem 20-4