Accounting for Uncollectible Accounts Receivable

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Accounting for Uncollectible Accounts Receivable

• Chapter 20

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Uncollectible Account

• What is it?
• An account that has defaulted (not paid) on what
  is owed to you
• What do you do?
• Either keep it on your books and hope that it is
  paid
• Close the account out
• Usually then we turn it over to a collection
  agency

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Terms that you need to know.

• Accounts Receivable
• That account that we have used all year long when
  someone buys something from us on account.
• Allowance for Uncollectible Accounts
• Contra account for Accounts Receivable
• The balance in this account reduces the amount of
  accounts receivable
• We agree that there will be a certain amount of
  accounts that will not be paid.

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More terms that you need to know.

• Allowance method of recording losses from
  uncollectible accounts
• When we use the allowance for uncollectible
  accounts account
• Book Value
• The difference between an assets account balance
  and its related contra account balance is its
  book value.
• Car example

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• Book value of accounts receivable
• The difference between accounts receivable and
  its contra account
• Estimating uncollectible accounts expense
• Doesn't it make sense that we assume a portion of
  our accounts receivable will be uncollected?
• So we estimate a number, that a portion of our
  sales on account will be uncollectible. We get
  that percentage either from prior years or what
  the industry average is..

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• Total Sales on Account X Percentage Estimated
  Uncollectible Accounts Expense
• 982800 x 1 9828.00
• We assume that 9828.00 additional will not be
  collected. We would add that to the actual
  amount that has not been collected and that would
  give us our total of uncollectible.
• The 9828 is an adjustment that goes on the
  worksheet adjustment column, and is journalized
  and posted just like the other adjustments.

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• Please work on On Your Own on page 532

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Writing off and collecting accounts receivable.

• Once we determine that an account will not be
  collected. We need to write that account off.
• Here is how you need to think of it. When we
  first put the sale on our books we increased our
  Accounts Receivable, and increased our sales.
• Now that it is uncollectible we need to decrease
  our Accounts receivable by writing it off, and
  using the contra account Allowance for
  Uncollectible accounts to decrease our sales
  account. This is called writing off the account.

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December 3 Wrote off Ryan Recreations past due
account as uncollectible, 462.00 Memorandum No.
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General Journal General Journal General Journal General Journal General Journal General Journal Page 1
Date Account Title Doc No Post Ref Debit Credit
Dec 3 Allow. For Uncollectible Accounts M2   462  
Accts. Rec./ Ryan Recreation     462
         
     
Remember that we must post these in the
appropriate General ledger accounts As
well. Please look at page 534 in textbook
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What happens if we receive money from an account
that was previously written off?
January 29. Received cash in full payment of
Ryan Recreations account, previously written off
as uncollectible. 462.00. Memorandum No. 3 and
Receipt No. 8.
Cash Receipts Journal Cash Receipts Journal Cash Receipts Journal Cash Receipts Journal Cash Receipts Journal Cash Receipts Journal Cash Receipts Journal Cash Receipts Journal Cash Receipts Journal Cash Receipts Journal Cash Receipts Journal Cash Receipts Journal Cash Receipts Journal
Date Date Account Title Doc Post Ref General General A/R Credit Sales Credit Sales Tax Payable Sales Tax Payable Sales Discount Debit Cash Debit
Date Date Account Title Doc Post Ref Debit Credit A/R Credit Sales Credit Debit Credit Sales Discount Debit Cash Debit
Jan 29 Ryan Recreational R8       462         462
                         
                         
Step one Record the cash that we received from
the payment of the Accounts Rec.
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Step two is to fix the Account Receivable and
put it back on the books as a receivable instead
of a uncollectible.
So we have to write it out of the uncollectible
accounts account, and put it back onto the
accounts receivable.
General Journal General Journal General Journal General Journal General Journal General Journal General Journal
Date Date Account Title Doc No Post Ref Debit Credit
Jan 29 Accts/ Receivable/ Ryan Recreation M3   462  
    Allowance for Uncollectible Accts       462
             
             
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Here is the work!!!!!!

• Problems 20-1,2,3
• Computer Problem 20-4