7. Cheatsheet Accounts Receivable

What new debit accounts are in this chapter?

Bad Debts Expense

What new credit accounts are in this chapter?

Allowance for Doubtful Accounts

What does allowance for doubtful accounts do (contra asset account)?

Reduces accounts receivable to its estimated realizable value.

What is realizable value?

Expected proceeds from converting an asset to cash.

What is the formula for realizable value?

accounts receivable - allowance for doubtful accounts.

What is the entry to record sale with a fee for credit card?

debit Cash for full amount minus fee, debit Credit Card expense for free amount, credit Sales for full amount

What is the entry to write off an uncollectible accounts receivable when it is determined to be uncollectible? (Direct write off)

debit Bad Debts Expense, credit Accounts Receivable for specific customer

How many entries are needed when an account that was determined to be uncollectible is later collected?

2

What is the first entry for when an account that was determined to be uncollectible is later collected?

We need to re-instate the account. debit Accounts Receivable for specific customer, credit Bad Debts Expense

What is the second entry for when an account that was determined to be uncollectible is later collected?

We need to record the full payment of the account. debit Cash, credit Accounts Receivable for specific customer

What is the entry to record the adjustment for estimated bad debts at the end of each accounting period (allowance method)?

debit Debts Expense for estimated uncollectible accounts receivable, credit Allowance for Doubtful Accounts for same amount

What is the first way you can report allowance for doubtful accounts in the balance sheet?

Show full amount of Accounts Receivable and less Allowance for doubtful accounts balance.

What is the second way you can report allowance for doubtful accounts in the balance sheet?

Accounts receivable (net of balance doubtful accounts) would only show the adjusted amount.

What is the entry to write off bad debt (account is uncollectible)?

debit Allowance for Doubtful Accounts, credit Account Receivable for specific customer

When using the allowance method, does writing off the bad debt affect the realizable value of accounts receivable?

No because these are affected when bad debts expense is estimated and recorded with an adjusting entry at the end of each accounting period.

What is the first entry to record when a customer pays off an account that was written off?

Reinstate the account. debit Accounts Receivable, credit Allowance for Doubtful Accounts

What is the second entry to record when a customer pays off an account that was written off?

Record full payment of account. debit Cash, credit Accounts Receivable

Does the percent of sales method for estimating bad debts care about if there is an unadjusted balance currently in the Allowance for Doubtful Accounts account?

No, it just increases the account by the estimate that was calculated. This is different than the next methods, percent of receivables and aging of receivables, which does take the unadjusted balance into account.

What is the entry to record the estimated bad debt using percent of sales method?

debit Bad Debts Expense and credit Allowance for Doubtful Accounts by estimated amount.

Does percent of receivables method take into account the unadjusted balance in Allowance for Doubtful Accounts?

Yes.

Review

The adjusting entry takes into account the current debit or credit balance in the unadjusted amount. If the estimate is $2,500 and we have a credit balance already of $200 then we would only need to debit Bad Debts Expense and credit Allowance for Doubtful Accounts by $2,300, not $2,500.

Explain aging of receivables method.

The longer the receivable is past due, the higher the percentage will be uncollectible. 

Does aging of receivables take into account the unadjusted balance in Allowance for Doubtful Accounts?

Yes.

What is the entry to record the estimated bad debts expense (and allowance for doubtful accounts) if there is an unadjusted credit balance in the allowance account?

debit Bad Debts Expense and credit Allowance for Doubtful Accounts by the difference between the credit (unadjusted balance) and estimated balance.

What is the entry to record the estimated bad debts expense (and allowance for doubtful accounts) if there is an unadjusted debit balance in the allowance account?

debit Bad Debts Expense and credit Allowance for Doubtful Account by sum of debit (unadjusted) balance and estimated balance.