Accounts Receivable

Quick Study Sheet

The balance sheet for accounts receivable will show:

Accounts Receivable	Total amount customers owe you
– Allowance for Uncollectible Accounts	– Amount you don’t think you will collect
= Net Accounts Receivable	= Amount you do think you will collect

There are 4 key transactions that must be recorded for accounts receivables:

1) The sale on credit, which increases accounts receivable

2) The collection of the accounts receivable when a customer pays – decreases A/R

3) The estimate of bad debt expense – you don’t know exactly how much

4) The write off of an accounts receivable when you know who won’t pay you

Journal entries for the 4 transactions are:

How the 4 transactions change the accounts:

Estimate Bad Debt Expense:

% of Sales Method:		% of Accounts Receivable (aging)
Sales		Accounts Receivable
x % of sales (given)		x % of A/R (given)
= Bad debt expense		Balance in the Allowance account

The difference between the two methods:

% of Sales:

You are calculating the total bad debt expense for the period – record it

% of A/R:

You are calculating a cumulative amount that you do not expect to collect and this is the ending balance in the allowance for uncollectible accounts

Record the amount it takes to get to the calculated ending balance