Chapter 7 Accounting

accounts receivable

right to collect cash from customers

Direct Write-Off Method

Dr Bad Debts Expense, CR Accounts Receivable

Direct Write-Off Recovery

DR Accounts Receivable, CR Bad Debt Expense

Direct Write-Off Collection

DR Cash, CR Accounts Receivable

Allowance for Doubtful Accounts

contra-asset account, represents company’s estimate of uncollectibles

Net realizable value

ending balance in A/R - Balance in Allowance

Allowance Method Estimate JE

DR Bad Debts Expense, CR Allowance for Doubtful Accounts

Allowance Method Write-Off

DR Allowance for Doubtful Accounts, CR A/R

Allowance Method Recovery

DR Accounts Receivable, CR Allowance for Doubtful Accounts

Allowance Method Collection

DR Cash, CR A/R

Percent of Sales Method (Allowance)

Sales * % estimated uncollectible = Bad Debt Expense

Receivables Method

A/R * % estimated uncollectible = Desired Ending Allowance —> Solve for Bad Debt Expense

Credit Card Sales

1. DR Cash, DR Credit Card Expense, CR Sales Revenue

2. DR COGS, CR Merchandise Inventory

Selling Receivables (“factoring”)

DR Cash, DR factoring fee expense, CR A/R

Pledging receivables

DR Cash, CR Note Payable

Notes Receivable

asset account, represents the right to collect cash in the future

JE for lending Notes Receivable

DR Note Receivable, CR Cash

JE for sale in Notes Receivable

DR Note Receivable, CR sales revenue

Satisfaction of A/R (Notes Receivable)

DR N/R, CR A/R

promissory note

maker promises to pay the payee

face value (principal)

amount borrowed

maturity date

due date that principal must be repaid

maturity value

principal interest rate (days/360)

dishonored ntoe

maker fails to pay the payee by the due date the note is dishonored

dishonored

DR Accounts Receivable, CR N/R, CR I/R