北大光华会计课4.ppt

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 Allowance for Doubtful Accounts balance is reduced to $2,000. Notice that the $500 write-off did not change the net realizable value nor did it affect any income statement accounts. * At the end of each month, management should estimate the probable amount of uncollectible accounts and adjust the Allowance for Doubtful Accounts to this new estimate. There are two methods to estimate uncollectible accounts. One method is the Balance Sheet Approach and the other is the Income Statement Approach. Let’s look at the Balance Sheet Approach first. * When using the Income Statement Approach, the estimate at the end of the period is determined by taking current period sales and multiplying by an established bad debt percentage. The bad debt percentage is determined based on past history of the company and current economic trends. The sales transactions included in this computation are typically only the credit sales. There are not any collection issues to consider for cash sa