accounting for uncollectible receivables direct write-off method not gaapnot gaap used for tax...
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Accounting for Accounting for Uncollectible ReceivablesUncollectible Receivables
Direct Write-off MethodDirect Write-off Method•not GAAPnot GAAP•used for Tax Purposesused for Tax Purposes
Allowance MethodAllowance Method•is GAAPis GAAP•matches the expense to the revenue matches the expense to the revenue generatedgenerated•values receivables at their net realizable values receivables at their net realizable valuevalue
Expenses are matched to the revenue Expenses are matched to the revenue generated in that accounting periodgenerated in that accounting period
““let the expenses follow the revenues”let the expenses follow the revenues”
Matching PrincipleMatching Principle
Never overstate assets or income.Never overstate assets or income.
Conservatism ConstraintConservatism Constraint
Allowance for Doubtful AccountsAllowance for Doubtful AccountsDebit Debit
Actual amounts written off Actual amounts written off during the periodduring the period
CreditCreditBeginning balanceBeginning balance
Amnts. Recorded as uncollectible Amnts. Recorded as uncollectible accounts expenseaccounts expense
Amnts. Recovered from write-Amnts. Recovered from write-offsoffs= Ending balance= Ending balance
Accounts Receivable Accounts Receivable Debit Debit Beginning balanceBeginning balance
Credit SalesCredit Sales
Reinstated A/R Reinstated A/R previously Written-offpreviously Written-off
Ending BalanceEnding Balance
CreditCredit
Amounts rec’d from CustomersAmounts rec’d from Customers
Accounts Written OffAccounts Written Off
Allowance Methods of Allowance Methods of Valuing ReceivablesValuing Receivables
• Percentage-of-Sales MethodPercentage-of-Sales Method - Income - Income Statement Approach focusing on Statement Approach focusing on matchingmatching the “expense” to the revenue generatedthe “expense” to the revenue generated
• Percentage-of-Receivables MethodPercentage-of-Receivables Method - - Balance Sheet Approach focusing on the Balance Sheet Approach focusing on the balance in the “allowance” calculation to balance in the “allowance” calculation to determine the determine the net realizable value net realizable value following following conservatismconservatism
Accounting Accounting forfor Uncollectible Accounts Uncollectible AccountsAllowance Method (GAAP)Allowance Method (GAAP)
Dr. Bad Debt Expense Dr. Bad Debt Expense $$$$$$Cr. Allowance for Doubtful Accts Cr. Allowance for Doubtful Accts $$$$$$
Adjusting journal entryAdjusting journal entry
Dr. Allowance for Doubtful Accts Dr. Allowance for Doubtful Accts $$$$$$Cr. A/R - Dead BeatCr. A/R - Dead Beat $$$$$$
Write off a specific account as uncollectibleWrite off a specific account as uncollectible
Dr. A/R - Dead BeatDr. A/R - Dead Beat $$$$$$Cr Allowance for Doubtful AcctsCr Allowance for Doubtful Accts $$$$$$
Reinstate account if payment is receivedReinstate account if payment is received
Dr. CashDr. Cash $$$$$$Cr. A/R - DeadbeatCr. A/R - Deadbeat $$$$$$
Apply payment to reinstated accountApply payment to reinstated account
Accounting Accounting forfor Uncollectible Accounts Uncollectible AccountsDirect Write-Off Method (Not GAAP -- used for Tax Purposes)Direct Write-Off Method (Not GAAP -- used for Tax Purposes)
Dr. Bad Debt ExpenseDr. Bad Debt Expense $$$$$$Cr. A/R - Dead Beat Cr. A/R - Dead Beat $$$$$$
Write off a specific account as uncollectibleWrite off a specific account as uncollectible
Dr. A/R - Dead BeatDr. A/R - Dead Beat $$$$$$Cr Bad Debts Expense Cr Bad Debts Expense $$$$$$
Reinstate account if payment is receivedReinstate account if payment is received
Dr. CashDr. Cash $$$$$$Cr. A/R - DeadbeatCr. A/R - Deadbeat $$$$$$
Apply payment to reinstated accountApply payment to reinstated account