Accounts receivable process flow ppt

account receivable management ppt and accounts receivable powerpoint presentation
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Dr.DouglasPatton,United States,Teacher
Published Date:26-07-2017
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CHAPTER 9 ACCOUNTING FOR RECEIVABLES www.ThesisScientist.comRECEIVABLES • The term receivables refers to amounts due from individuals and other companies; they are claims expected to be collected in cash. • Three major classes of receivables are: 1. Accounts Receivable 2. Notes Receivable 3. Other Receivables www.ThesisScientist.comACCOUNTS RECEIVABLE The three primary accounting problems associated with accounts receivable are: 1. Recognizing accounts receivable. 2. Valuing accounts receivable. 3. Disposing of accounts receivable. www.ThesisScientist.comRECOGNIZING ACCOUNTS RECEIVABLE GENERAL JOURNAL Date Account Titles and Explanation Debit Credit July 1 Accounts Receivable - Adorable Junior 1,000 Sales 1,000 To record sales on account. When a business sells merchandise to a customer on credit, Accounts Receivable is debited and Sales is credited. www.ThesisScientist.comRECOGNIZING ACCOUNTS RECEIVABLE GENERAL JOURNAL Date Account Titles and Explanation Debit Credit July 5 Sales Returns and Allowances 100 Accounts Receivable - Adorable 100 To record merchandise returned. When a business receives returned merchandise previously sold to a customer on credit, Sales Returns and Allowances is debited and Accounts Receivable is credited. www.ThesisScientist.comRECOGNIZING ACCOUNTS RECEIVABLE GENERAL JOURNAL Date Account Titles and Explanation Debit Credit July 31 Cash (1,000 - 100) 900 Accounts Receivable - Adorable 900 To record collection of account. When a business collects cash from a customer for merchandise previously sold on credit, Cash is debited and Accounts Receivable is credited. www.ThesisScientist.comRECOGNIZING ACCOUNTS RECEIVABLE GENERAL JOURNAL Date Account Titles and Explanation Debit Credit July 31 Accounts Receivable - Adorable 13.50 Interest Revenue 13.50 To record interest on amount due. When financing charges are added to a balance owing, Accounts Receivable is debited and Interest Revenue is credited. www.ThesisScientist.comVALUING ACCOUNTS RECEIVABLE • To ensure that receivables are not overstated on the balance sheet, they are stated at their net realizable value. • Net realizable value is the net amount expected to be received in cash and excludes amounts that the company estimates it will not be able to collect. www.ThesisScientist.comVALUING ACCOUNTS RECEIVABLE • Two methods of accounting for uncollectible accounts are: 1. Allowance method 2. Direct write-off method www.ThesisScientist.comDIRECT WRITE-OFF METHOD • Under the direct write-off method, no entries are made for bad debts until an account is determined to be uncollectible at which time the loss is charged to Bad Debts Expense. • No attempt is made to match bad debts to sales revenues or to show the net realizable value of accounts receivable on the balance sheet. www.ThesisScientist.comDIRECT WRITE-OFF METHOD GENERAL JOURNAL Date Account Titles and Explanation Debit Credit Jan. 12 Bad Debts Expense 200 Accounts Receivable — E. Schaefer 200 For write-off of E. Schaefer account. Periera Company writes off E. Schaefer’s 200 balance as uncollectible on January 12. When this method is used, Bad Debts Expense will show only actual losses from uncollectibles. www.ThesisScientist.comTHE ALLOWANCE METHOD • The allowance method is required when bad debts are deemed to be material in amount. • Uncollectible accounts are estimated and the expense for the uncollectible accounts is matched against sales in the same accounting period in which the sales occurred. www.ThesisScientist.comTHE ALLOWANCE METHOD GENERAL JOURNAL Date Account Title and Explanation Debit Credit Dec. 31 Bad Debts Expense 24,000 Allowance for Doubtful Accounts 24,000 To record estimate of uncollectible accounts. Estimated uncollectible amounts are debited to Bad Debts Expense and credited to Allowance for Doubtful Accounts (a contra asset account) at the end of each period. www.ThesisScientist.comADORABLE JUNIOR GARMET Balance Sheet (partial) Current assets Cash 14,800 Accounts receivable 200,000 Less: Allowance for doubtful accounts 24,000 188,000 Net Realizable Value www.ThesisScientist.comTHE ALLOWANCE METHOD GENERAL JOURNAL Date Account Titles and Explanation Debit Credit 500 Mar. 1 Allowance for Doubtful Accounts Accounts Receivable — Nadeau 500 Write-off of Nadeau account. Actual uncollectible accounts are debited to Allowance for Doubtful Accounts and credited to Accounts Receivable at the time the specific account is written off. www.ThesisScientist.comTHE ALLOWANCE METHOD GENERAL JOURNAL Date Account Titles and Explanation Debit Credit 500 July 1 Accounts Receivable — Nadeau 500 Allowance for Doubtful Accounts To reverse write-off of Nadeau account. When there is recovery of an account that has been written off: 1. reverse the entry made to write off the account and ... www.ThesisScientist.comTHE ALLOWANCE METHOD GENERAL JOURNAL Date Account Titles and Explanation Debit Credit 500 July 1 Cash 500 Accounts Receivable —Nadeau To record collection from Nadeau. 2. Record the collection in the usual manner. www.ThesisScientist.comBASES USED FOR THE ALLOWANCE METHOD • Companies use either of two methods in the estimation of uncollectible accounts: 1. Percentage of sales 2. Percentage of receivables • Both bases are GAAP; the choice is a management decision. www.ThesisScientist.comILLUSTRATION 9-4 COMPARISON OF BASES OF ESTIMATING UNCOLLECTIBLES Percentage of Sales Percentage of Receivables Matching Net Realizable Value Allowance Sales Bad Debts Accounts for Expense Receivable Doubtful Accounts Emphasis on Income Emphasis on Statement Balance Sheet Relationships Relationships www.ThesisScientist.comPERCENTAGE OF SALES BASIS • In the percentage of sales basis, management establishes a percentage relationship between the amount of credit sales and expected losses from uncollectible accounts. • Expected bad debt losses are determined by applying the percentage to the sales base of the current period. • This basis better matches expenses with revenues. www.ThesisScientist.com

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