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ACCOUNTS RECEIVABLE, ALLOWANCE FOR DOUBTFUL ACCOUNTS AND BAD DEBT EXPENSES KRISHNAMURTHY SURYSEKAR FLORIDA INTERNATIONAL UNIVERSITY SUMMER 2013 ACCOUNTS RECEIVABLE • Increases with credit sales, decreases with collection of customer dues • GAAP requires an estimate of uncollectible amounts to be deducted from accounts receivble • Done through a “contra” account called Allowance for doubtful accounts Reporting of Accounts Receivable Intel Balance Sheet as of Dec. 25, 2010 Current Assets section ($ Million) Accounts Receivables 2895 Less Allowance for doubtful accounts 28 Accounts Receivables (net) 2867 How to implement • Say this is your first year of operations, • You have $500 of accounts receivable at the end of the year • You estimate $10 of these receivables will not be collected • Record a “bad debt expense” of $10 and an “allowance for doubtful accounts” of $10 How to implement (continued) Income statement for the year: Bad debt expense $10 Balance sheet at the end of the year Accounts receivable $500 Less Allowance for doubtful accounts 10 Accounts Receivable (net) $490 Estimation Methods – Bad debt expenses = x% of year’s credit sales – Bad debt expenses = Desired balance in Allowance for doubtful accounts minus available balance in Allowance for doubtful accounts Allowance for Doubtful Accounts (Example) – Accounts Receivable (1/1/10):$200,000 – All. For Doubtful Accts.(1/1/2010):$10,000 – Credit Sales during 2010: $1,00