Regional Concept #2 Writing Off Bad Debts (Uncollectible Accounts Rec)

Accounts Receivable

Money owed to a business for credit sales.

Realization of Revenue

Revenue is recognized upon sale, not collection.

Bad Debts

Accounts that are uncollectible or doubtful.

Writing Off an Account

Canceling a non-paying customer's balance.

Direct Write-off Method

Records bad debt expense directly against A/R.

Allowance Method

Estimates uncollectible accounts in a contra account.

Bad Debt Expense

Cost associated with uncollectible accounts receivable.

Allowance for Uncollectible Accounts (AUA)

Contra asset account for estimated bad debts.

Contra-Asset Account

Reduces the value of a related asset account.

Percentage of Sales Method

Estimates bad debts based on sales percentage.

Aging of A/R Method

Estimates bad debts based on account age.

Adjustment Journal Entry (AJE)

Entry to adjust accounts for bad debts.

Book Value of A/R

Net amount expected to be collected from A/R.

Matching Principle

Aligns expenses with revenues in the same period.

Conservatism Principle

Reports lower asset values to avoid overstatement.

Collecting Previously Written Off Accounts

Reverses bad debt entry upon recovery of payment.

Cash Collection Entry

Records cash received from a customer.

DR (Debit)

Increases asset or expense accounts.

CR (Credit)

Increases liability or equity accounts.

Net Sales

Total sales minus returns and allowances.

Estimated Uncollectible Amount

Projected losses from credit sales.

Customer Credit Ratings

Assessment of a customer's creditworthiness.

Overstatement of Assets

Inflated asset values due to unrecorded bad debts.