Você está na página 1de 29

Uncollectible Accounts (Bad Debts)

Bad debts (uncollectible accounts) are receivables that a company estimates it will not collect.
They are an expense of the period
They are estimated and recorded at the end of the period with an adjusting entry
We debit uncollectible accounts (Bad Debt) expense, and credit Allowance for Doubtful Accounts
Allowance for Doubtful Accounts is a Contra-Asset to Accounts Receivable

example:
12/31
Bad debt (uncollectible accounts) expense xx
Allowance for doubtful accounts xx
To record bad debt expense for the period.

Two Methods May Be Used to Estimate Bad Debt Expense


1. Allowance (Aging) Approach - Balance Sheet Approach
Presents Accounts Receivable at its Net Realizable Value (NRV) on the Balance Sheet
Criticism - Does not Match Revanue with Expenses
2. Percentage of Sales Method - Expenses Bad Debts as a Percentage of Sales - Income Statement Approach
Criticism - Does not present Receivables at Net Realizable Value (NRV) on the Balance Sheet

Most companies use the aging approach, so the following exercises are illustrations of the aging approach

Read the illustration of this approach for Valley Ranch Supply in your textbook page 306 (bottom)
Your instructor has repeated it below:

Maple Company
Aging Exhedule
December 31, 2011

1-30 days 31-60 days 61-90 days


Total Not Yet Due Past due Past due Past due

Animal Care Center 9,000 9,000


Butterfield, John D 2,400 2,400
Citrus Groves Inc. 4,000 3,000 1,000
Dairy Fresh Farms 1,600 600
Eastlake Stables 13,000 7,000 6,000
Others 70,000 32,000 22,000 9,600 2,400
Totals 100,000 51,000 29,000 12,000 3,000
VALLEY RANCH SUPPLY PAGE
Estimated Uncollectible Accounts
December 31, 2011

Age Group Estimated


Total Percentage Uncollectible
Not Yet Due 51,000 1% 510
1-30 days 29,000 3% 870 JE
Past due - 12/31
31-60 days 12,000 10% 1,200 To Record December Bad D
Past due -
61-90 days 3,000 20% 600 Balance Sheet
Past due - Accounts Receivable
Over-90 days 5,000 50% 2,500 Allowance for Doubtful Acc
Past due Net Realizable Value Accou
Totals 100,000 5,680

Write-off of Accounts Receivable

Bad debts are estimated at the end of the period, but accounts receivable are written-off (eliminated from
the accounting records) when the company is sure they will not be collected. This occurs during the
accounting period.

Journal entry to write off an account receivable.


1/15
Allowance for doubtful accounts 4,000
Accounts receivable (Customer) 4,000
To write off customer's account receivable - customer has filed for bankruptcy.

Read the illustration of the write-off of account receivable page 305

Assume that early in February, World Famous Toy Co learns that Discount Stores has gone out of business and that the $4,000
from this customer is now worthless.

2/15
Allowance for doubtful accounts 4,000
Accounts receivable 4,000
To write off customer's account receivable - customer has filed for bankruptcy.

This is a comparison of the net realizable value of the receivables before and
after the write-off.

Before writeoff After writeoff


Accounts Receivable 250,000 246,000
Allowance 10,000 6,000
Net Realizable Value 240,000 240,000 2/15

Note that the write-off of a receivable does not change the


net realizable value of the receivables.

Balance

Bank Reconciliation ( Bank Rec) - Pages 294-299


A schedule explaining differences between the balance in the bank statement (bank balance )and the balance in the company'
accounting records. (book balance)

Terminology
Outstanding checks - Checks issued and recorded by the company that have not yet been cleared by the bank.

Deposits in transit - Cash deposited in the bank and recorded by the company that have not yet reached the bank.

Service charges - fees charged by the bank - these are expenses of the period

NSF checks - "Non-sufficient funds" - bounced checks - checks paid to the company and recorded by the
company, that the customer does not have sufficient funds to cover.

To do a banc rec you need a bank statement balance, and a checkbook balance.
Start with the bank balance and add deposits in transit, then subtract outstanding checks.
The total is your adjusted balance.
Then reconcile the book balance to equal this amount.
See if you can answer the following questions:
Why are deposits in transit added to the bank balance?
Why are outstanding checks subtracted from the bank balance?
Why are service charges subtracted from the checkbook balance?
Why are NSF checks subtracted from the checkbook balance?
If you can answer the questions, then the bank rec will make sense
Over-90 days Allowance for
Past due Doubtful Accounts
4,000 Balance
1,680 12/31

1,000
5,680 Per
4,000 Aging
5,000
Bad Debt
Expense (Exp)
12/31 1,680

1,680

Bad Debt Expense 1,680


Allowance for doubtful Accounts 1,680
o Record December Bad Debt Expense

alance Sheet
Accounts Receivable 100,000
Allowance for Doubtful Accounts (5,680)
Net Realizable Value Accounts Receivable 94,320

iness and that the $4,000 account receivable


Allowance for
Doubtful Accounts
4,000 10,000 Balance

6,000

Accounts Receivable

250,000 4,000 2/15

246,000

e balance in the company's

hed the bank.


Maple Company
Aging Exhedule
February 28, 20X5
Not Yet 1-30 days 31-60 days 61-90 days Over-90 days
Total Due Past due Past due Past duePast due

Puppy Palace 9,000 9,000


Brown, James 2,400 2,400
Journey Inc. 4,000 3,000 1,000
Fermers Company 1,600 600
###
Riding Equipment 13,000 7,000 6,000
Others 70,000 32,000 22,000 9,600 2,400
###
Totals 100,000 51,000 29,000 12,000 3,000
###

Maple Company
Estimated Uncollectible Accounts
February 28, 20X5

Age Group Estimated


Total Percentage Uncollectible
Not Yet Due 51,000 2% 1,020
1-30 days 29,000 4% 1,160
Past due -
31-60 days 12,000 12% 1,440
Past due -
61-90 days 3,000 30% 900
Past due -
Over-90 days 5,000 60% 3,000
Past due
Totals 100,000 7,520
Over-90 days
Brief exercise 7.5

Pachel Corporation reports the following information pertaining to its accounts receivable:

PACHEL CORPORATION
Aging Schedule
December 31, 2011
1-30 days 31-60 days 61-90 days Over-90 days
Not Yet Due Past due Past due Past due Past due
60,000 40,000 25,000 12,000 2,000

The company’s credit department provided the following estimates regarding the percent of accounts
expected to eventually be written off from each category listed above:

Current receivables outstanding 2%


Receivables 1– 30 days past due 4%
Receivables 31– 60 days past due 16%
Receivables 61– 90 days past due 40%
Receivables over 90 days past due 90%

The company uses a balance sheet approach to estimate credit losses.

a. Record the company’s uncollectible accounts expense, assuming it has a $ 1,400 credit balance in its Allowance
Use the T-account if it helps you.

PACHEL CORPORATION
Estimated Bad Debts PerAging Exhedule
December 31, 2011

1-30 days 31-60 days 61-90 days Over-90 days


Not Yet Due Past due Past due Past due Past due
60,000 40,000 25,000 12,000 2,000
Percent 2% 4% 16% 40% 90%
1,200 1,600 4,000 4,800 1,800
Estimated Bad Debts 13,400

PACHEL CORPORATION
General Journal

12/31 ???
???
To Record December Bad Debt Expense
b. Record the company’s uncollectible accounts expense, assuming it has a $ 1,600 debit balance in its Allowance for Doubtful

PACHEL CORPORATION
Estimated Bad Debts PerAging Exhedule
December 31, 2009

1-30 days 31-60 days 61-90 days Over-90 days


Not Yet Due Past due Past due Past due Past due
60,000 40,000 25,000 12,000 2,000
Percent 2% 4% 16% 40% 90%
1,200 1,600 4,000 4,800 1,800
Estimated Bad Debts 13,400

PACHEL CORPORATION
General Journal

12/31 ???
???
To Record December Bad Debt Expense

a. bad debt expense 12,000


12/31 allowance for doubtful accounts 12,000
To record bad debt expense assuming the allowance account has
a credit balance of $1,400.

b.
12/31 bad debt expense 15,000
allowance for doubtful accounts 15,000
To record bad debt expense assuming the allowance account has
a debit balance of $1,600.
nt of accounts

edit balance in its Allowance for Doubtful Accounts prior to making the necessary adjustment.

Allowance for
Doubtful Accounts
1,400 Balance
?? 12/31

?? Per
Aging

ON

Debit Credit
??
??
e in its Allowance for Doubtful Accounts prior to making the necessary adjustment.

Allowance for
Doubtful Accounts
Balance 1,600 ?? 12/31

?? Per
Aging

ON

Debit Credit
??
??

b. Allowance for
Doubtful Accounts
Balance 1,600 15,000 12/31

13,400 Per
Aging
Problem 7.3A

Super Star, a Hollywood publicity firm, uses the balance sheet approach to estimate uncollectible accounts expense
of the accounts receivable produced the following five groupings:

Not yet due $500,000


1– 30 days past due 210,000
31– 60 days past due 80,000
61– 90 days past due 15,000
Over 90 days past due 30,000
Total $835,000

On the basis of past experience, the company estimated the percentages probably uncollectible for the above five a

Not yet due 1%


1– 30 days past due 3%
31– 60 days past due 10%
61– 90 days past due 20%
Over 90 days past due 50%

The Allowance for Doubtful Accounts before adjustment at December 31 showed a credit balance of $ 11,800.

a. Compute the estimated amount of uncollectible accounts based on the above classification by age groups.
Your instructor has calculated below. Use the information to part b.

SUPER STAR
Estimated Bad Debts PerAging Exhedule
December 31, 2011

1-30 days 31-60 days 61-90 days Over-90 days


Not Yet Due Past due Past due Past due Past due
Amount 500,000 210,000 80,000 15,000 30,000
Percent 1% 3% 10% 20% 50%
5,000 6,300 8,000 3,000 15,000
Estimated 37,300

b. Prepare the adjusting entry needed to bring the Allowance for Doubtful Accounts to the proper amount.

SUPER STAR
General Journal
Debit Credit
12/31 ??? ??
??? ??
To Record December Bad Debt Expense
ollectible accounts expense. At year- end, an aging

ollectible for the above five age groups to be as follows:

it balance of $ 11,800.

cation by age groups.

e proper amount.

Allowance for
Doubtful Accounts
11,800 Balance
?? 12/31
?? Per
Aging
Self-test Question 7

On January 1, Dillon Company had a $ 3,100 credit balance in the Allowance for Doubtful Accounts. During the year
sales totaled $ 780,000, and $ 6,900 of accounts receivable were written off as uncollectible. A December 31 aging o
indicated the amount probably uncollectible to be $ 5,300. Dillon’s financial statements for the current year should in

A. Uncollectible accounts expense of $ 9,100.


B. Uncollectible accounts expense of $ 5,300. Allowance for
C. Allowance for Doubtful Accounts with a credit balance of $ 1,500. Doubtful Accounts
D. Allowance for Doubtful Accounts with a credit balance of $ 8,400. ??

Correct answer:
counts. During the year,
A December 31 aging of accounts receivable
e current year should include:

Allowance for
Doubtful Accounts
3,100 Balance
?? 12/31

?? Per
Aging
Exercise 7.5

Shown below is the information needed to prepare a bank reconciliation for Warren Electric at December 31:

1. At December 31, cash per the bank statement was $ 15,200; cash per the company’s records was $ 17,500.

2. Two debit memoranda accompanied the bank statement: service charges for December of $ 25, and a $ 775 che

3. Cash receipts of $ 10,000 on December 31 were not deposited until January 4.

4. The following checks had been issued in December but were not included among the paid checks returned by the

a. Prepare a bank reconciliation at December 31.

WARREN ELECTRIC
Bank Reconciliation
December 31, 2011

Bank Balance ?? Book Balance


Add ?? ?? Subtract ??
Subtract ?? ?? Subtract ??
checks
Adjusted Balance #VALUE!

b. Prepare the necessary journal entry or entries to update the accounting records.

WARREN ELECTRIC
General Journal
Debit Credit
12/31 ??? ??
??? ??
??? ??
To record bank service charge for December and NSF check
returned by bank.
Electric at December 31:

ny’s records was $ 17,500.

ember of $ 25, and a $ 775 check drawn by Jane Jones marked “ NSF.”

the paid checks returned by the bank: no. 620 for $ 1,000, no. 630 for $ 3,000, and no. 641 for $ 4,500.

??
??
??

#VALUE!
Problem 7.1A

The cash transactions and cash balances of Banner, Inc., for July were as follows:

1. The ledger account for Cash showed a balance at July 31 of $ 125,568.

2. The July bank statement showed a closing balance of $ 114,828.

3. The cash received on July 31 amounted to $ 16,000. It was left at the bank in the night deposi-tory chute after ban
and therefore was not recorded by the bank on the July statement.

4. Also included with the July bank statement was a debit memorandum from the bank for $ 50 representing service

5. A credit memorandum enclosed with the July bank statement indicated that a non- interest-bearing note receivabl
Rene Manes, left with the bank for collection, had been collected and the proceeds credited to the account of Banne

6. Comparison of the paid checks returned by the bank with the entries in the accounting records revealed that chec
no. 821 for $ 519, issued July 15 in payment for office equipment, had been erroneously entered in Banner’s record

7. Examination of the paid checks also revealed that three checks, all issued in July, had not yet been paid by the ba

8. Included with the July bank statement was a $ 200 check drawn by Howard Williams, a cus-tomer of Banner, Inc.
It had been included in the deposit of July 27 but had been charged back against the company’s account on July 31

a. Prepare a bank reconciliation at July 31.

Banner Inc.
Bank Reconciliation
July 31, 2011

Bank Balance ??
Add ?? ??
Subtract ?? ??

Adjusted Balance #VALUE!

b. Prepare the necessary journal entry or entries to update the accounting records.
Banner Inc.
General Journal

7/31 ???
???
???
To record collection by bank of note receivable
from Rene Manes, and correct recorded cost of office equipment.

7/31 ???
???
???
To adjust accounting records for bank service
charges and the customer's check charged back as NSF
c., for July were as follows:

uly 31 of $ 125,568.

of $ 114,828.

It was left at the bank in the night deposi-tory chute after banking hours on July 31
y statement.

bit memorandum from the bank for $ 50 representing service charges for July.

atement indicated that a non- interest-bearing note receivable for $ 4,000 from
collected and the proceeds credited to the account of Banner, Inc.

with the entries in the accounting records revealed that check


equipment, had been erroneously entered in Banner’s records as $ 915.

ree checks, all issued in July, had not yet been paid by the bank: no. 811 for $ 314; no. 814 for $ 625; no. 823 for $ 175.

heck drawn by Howard Williams, a cus-tomer of Banner, Inc. This check was marked “ NSF.”
een charged back against the company’s account on July 31.

Banner Inc.
Bank Reconciliation
July 31, 2011

Book Balance ??
Subtract ?? ??
Add ?? ??
Subtract ?? ??
Add ?? ??

#VALUE!

date the accounting records.


Banner Inc.
General Journal
Debit Credit
??
??
??

??
??
??
no. 823 for $ 175.
Student Name:

Bus 151 -Chapter 7 Quiz - Multiple Choice


For each question select the letter of the best answer:

1. A contra-asset account relating to accounts receivable and showing the portion of the receivables estimated to be uncollec

A. Outstanding checks
B. Bed debt expense
C. Allowance for doubtful accounts
D. None of the above

Correct answer:

2. Checks issued and recorded by the company but not yet presented to the bank for payment.

A. Deposits in transit
B. Outstanding checks
C. Allowance for doubtful accounts
D. None of the above

Correct answer:

3. When doing a bank reconciliation this is subtracted from the check book balance.

A. Deposits in transit
B. Outstanding checks
C. NSF checks
D. None of the above

Correct answer:

4. Cash receipts recorded by the depositor that reached the bank too late to be included in the bank statement for the current

A. Deposits in transit
B. Outstanding checks
C. NSF checks
D. None of the above

Correct answer:

5. The last step in reconciling a bank statement is to:

A. Update the accounting records by making any necessary journal entries.


B. Subtract outstanding checks from the bank balance
C. Add notes receivable collected by the bank to the check book balance.
D. None of the above
Correct answer:
s estimated to be uncollectible.

statement for the current month.