北大光华管理学院财务会计ch4.ppt

Up to this point in the course, it’s been unrealistically assumed that all of the Accounts Receivable will be collected. In reality, payment will not be received for some Accounts Receivable. Companies must account for the fact that some customers may not be able to pay the amounts they owe. At the end of the period, a company estimates how much of its accounts receivable will not be collected. This estimate is based on past collection history and current economic information. The entry requires a debit to Uncollectible Accounts Expense and a credit to Allowance for Doubtful Accounts for the estimated amount. Uncollectible Accounts Expense is classified as a selling expense on the Income Statement. Allowance for Doubtful Accounts is a contra-asset account and has a normal credit balance. It is reported on the balance sheet as a subtraction from the Accounts Receivable balance to arrive at the amount of accounts receivable that is likely to be collected. * On the balance sheet, the Allowance for Doubtful Accounts is subtracted from the Accounts Receivable balance. The reported value is called net realizable value and is the amount of Accounts Receivable that will likely be collected. * Now, let’s see what happens when it’s been determined that a specific customer will not be able to pay the amount owed. When using the allowance method, write off an uncollectible account to Allowance for Doubtful Accounts. The company debits Allowance for Doubtful Accounts and credits Accounts Receivable. Now that the specific customer involved is known, the customer is noted in the transaction so the proper entry in the Accounts Receivable ledger can be made. Now assume that before this write-off entry the balance in Accounts Receivable was $10,000 and the balance in Allowance for Doubtful Accounts was $2,500. Let’s see what effect the write-off had on these accounts. * After the $500 write-off, the Accounts Receivable balance is reduced to $9,500 and the Allow