Chapter-13-Accounts-Receivable.ppt

Click to edit Master title style,Click to edit Master text styles,Second Level,Third Level,13-,*,ACCOUNTS RECEIVABLE,CHAPTER 13,Account receivable,Sales on credit to customers,Account receivable,Accounts owned to the company,Account receivable,Credit sales,Collection,The balance of Accounts receivable account,Increase,Decrease,Account receivable,Suppose the sale is made for cash,The entry?,Cash 1,000,Revenues from Sales 1,000,Account receivable,Suppose the sale is made on credit,The entry?,Accounts Receivable 1,000,Revenues from Sales 1,000,Account receivable,When the debt is collected,The entry?,Cash 1,000,Account receivable 1,000,Uncollectible accounts,or,bad debts,The accounts that,cant be collected,are called uncollectible accounts or bad debts.,Uncollectible accounts,Under,the,matching rule,expenses should be matched against with the sales.,The uncollectible accounts are incurred in the,process of making sales revenues,and they should,be recorded as the expenses of the same period,of sales.,Uncollectible accounts,Now,lets look at an example for,Stevs Barber,Shop,Uncollectible accounts,Example,Suppose that Stevs Barber Shop has$6,000 of accounts receivable for the whole year.,At the end of the year,accountants estimate that about$200 of the$6,000 of accounts to be uncollectible.,In the next year,the bad debt actually occurs.Thus the uncollectible accounts expense for this year will be$6,000.,Uncollectible accounts,Example,Dec.31 Uncollectible Accounts Expense$200,Allowance for Uncollectible Accounts$200,When bad debts actually occurred,Allowance for Uncollectible Accounts$200,Accounts Receivable$200,Methods used in estimating the allowance,1.Percentage of credit sales method,2.Accounts receivable aging method,3.Percentage of receivables method,Percentage of,credit,sales method,Method,1,Percentage of credit sales method,Percentage of credit sales method,Percentage is estimated based on actual uncollectible,accounts from prior years credit sales.,A percentage of credit,sales for the year are,assumed to be uncollectible.,%,%,%,Percentage of credit sales method,Companys experience,Ultimate uncollectible,accounts average:,2%of credit sales,Indicate,Expensed 2%,of the receivables,with an offsetting,credit to the reserve,for bad-debt,At year-end:Adjusting entry,Percentage of credit sales method,What is the effect of this adjusting entry?,Decrease in,Net Income,Decrease in net,Accounts Receivable,Percentage of credit sales method,Formula,Estimated percentage of uncollectible accounts,=(estimated uncollectible accounts/estimated credit sales)*100%,Percentage of credit sales method,Example,Now,lets look at an example,Orient Construction Materials Company had total credit sales of$6,000,000 during 2006.In the past,the percentage of bad debts is 2.5%.,Percentage of credit sales method,Example,The journal entry on December 31,?,December 31 Uncollectible Accounts Expense$150,000,Allowance for Uncollectible Accounts$150,000,Method,2,A,ccounts receivable aging metho,d,The Aging of,Receivables,method,A,ccounts receivable aging metho,d,The longer a receivable is outstanding,the less likely it is to be collected.,The Aging of Receivables method considers the,age and amount of the ending Accounts Receivable,balance.,A,ccounts receivable aging metho,d,The estimated uncollectible,Amounts in each category are,totaled to determine the total,allowance.,Individual accounts receivable from specific,customers are analyzed according to the length,of time they remain outstanding.,A,ccounts receivable aging metho,d,Example,Now,lets look at an example for,Orient,Company,Suppose that Orient Company had$600,000 of accounts receivable during 2006:,A-$100,000;,B-$150,000;,C-$200,000;,D-$150,000.,A,ccounts receivable aging metho,d,Example,Orient Company Analysis of Accounts Receivable by Age,December 31,2006,Item,Account,Balance,Not yet due,Past due,0-30days,31-60days,61-120days,Over 120days,A,$100,000,$50,000,B,$150,000,$100,000,$50,000,C,$200,000,$50,000,$50,000,$50,000,$50,000,D,$150,000,$50,000,$100,000,Total,$600,000,$200,000,$150,000,$50,000,$50,000,$100,000,Uncollectibility percentage,1%,3%,5%,6%,20%,Estimated,$32,000,$2,000,$4,500,$2,500,$3,000,$20,000,A,ccounts receivable aging metho,d,Example,The journal entry on December 31,?,December 31 Uncollectible Accounts Expense$32,000,Allowance for Uncollectible Accounts$32,000,P,ercentage of receivables method,Method,Percentage,of receivables,method,3,P,ercentage of receivables method,%,%,%,Focus:determining the desired,balance in the Allowance for,Uncollectible Accounts on the,Balance Sheet,This method uses a percentage of the ending accounts,receivable balance to estimate the allowance for,uncollectible accounts.,P,ercentage of receivables method,Year-End Accounts Receivable x Bad Debt%,Compute the estimate of the Allowance for Doubtful Accounts,Compute the estimate of the Allowance for doubtful Accounts,P,ercentage of receivables method,P,ercentage of receivables method,Example,Now,lets look at an example for,Orient Co.,P,ercentage of receivables method,Example,At the end of 2006,Orient Co.s accounts receivable,are$600,000 and the allowance account had a credit,balance of$2,000.,In the past,Orients percentage of uncollectible,accounts is 2%.,P,ercentage of receivables method,Example,The journal entry on December 31,?,December 31 Uncollectible Accounts Expense$10,000,Allowance for Uncollectible Accounts$10,000,WE ARE SAILING RIGHT ALONG!,