Kế toán, kiểm toán - Accounts receivable and bad debts expense

Accounts Receivable and Bad Debts ExpenseReceivables on Balance SheetTrade receivablesArise from sale of goods or services to customersNontrade receivablesArise from other sourcesBad Debts ExpenseAn account receivable that proves uncollectibleAccrual accounting requires that we recognize the bad debts expense in the same period as the sales revenueSince we may not know at end of period which accounts will be uncollectible, we must estimate the amountUse allowance methodRecording Bad Debts AdjustmentEstimate and record amount in an end-of-period adjustmentEstimate uncollectible amountRecord increase in expense and decrease in accounts receivableSince specific uncollectible account not known, use contra account Allowance for Doubtful AccountsBalance Sheet PresentationCurrent assets Cash $1,000 Accounts receivable $8,000 Deduct: Allow for DA 500 7,500 Notes receivable 900Writing Off Uncollectible AccountsAfter determining a specific account is uncollectibleDecrease accounts receivableDecrease allowance for doubtful accountsBalance Sheet Before Write-off AfterAccts Rec $8,000 $(200) $7,800Allowance 500 (200) 300Net realizable value $7,500 $7,500Recovery of Bad DebtsReinstate the accountIncrease accounts receivableIncrease allowance for doubtful accountsCollect the accountIncrease cashDecrease accounts receivableEstimating Bad Debts: Based on SalesUse a historical average of annual uncollectibles to annual net salesCalculate amount of bad debts expenseMultiply net sales by percentAdjust Bad Debts Expense by the amount calculatedEstimating Bad Debts: Based on Accounts ReceivableUse a historical average of annual uncollectibles to year end accounts receivableCalculate balance of allowance for doubtful accountsMultiply year end accounts receivable by percentAdjust Allowance for Doubtful Accounts to the amount calculatedAging of Accounts ReceivableSchedule that lists each invoice by days elapsed since due dateAging categoriesNot Yet Due1-30 Days Past Due21-60 Days Past Dueetc.Estimating Bad Debts with Aging ScheduleUse different percentage to estimate uncollectible amount for each aging categorySum of amounts calculated is desired balance in Allowance for Doubtful AccountsDirect Write-off MethodWrite off accounts receivable and record expense when account determined to be uncollectibleCauses a mismatching of revenue and expenseSimple to maintainCredit Card SalesCredit card fee reduces amount received from sales amountBank credit cardsAccepted as deposit for amount of sale less feeNonbank credit cardReceivable for amount of sale less feeAnalyzing InformationIs percent of bad debts expense to net sales increasing or decreasing?Is percent of allowance for doubtful accounts to gross accounts receivable increasing or decreasing?