5. Receivables General Info

What are trade receivables?

Receivables due from customers from the sale of goods or services on account (includes accounts receivable, notes receivable)

What are nontrade receivables?

Any receivables other than trade receivables

Examples are advances to officers and employees, tax refund claims owed to the company by the government, interest receivable.

How long are notes receivable usually for?

Notes receivables are usually for periods longer than 60 days.

What are the two methods of accounting for uncollectible receivables?

1. Direct write-off method

2. Allowance method

What are the two ways estimates for the allowance method can be done?

1. Estimates based on sales

2. Estimates based on analysis of receivables (aging of receivables)

How is estimate based on sales and estimate based on aging of receivables different when entering the journal entries?

For estimate based on sales you can just debit and credit the amount calculated based on sales (% of sales usually). However, for the aging of receivables method, we need to take into consideration if there is a debit or credit balance in the Allowance for Doubtful Accounts already and Credit the right amount to bring the balance of the account to the estimated amount.