Professional Documents
Culture Documents
19 - Account Receivables and Bad Debt
19 - Account Receivables and Bad Debt
19 - Account Receivables and Bad Debt
Receivables and
Bad Debt
Learning Objectives
1. Describe the accounting treatment of anticipated
uncollectible accounts receivable.
Learning Objectives
1. Describe the accounting treatment of anticipated
uncollectible accounts receivable.
2. Describe the two approaches to estimating bad debts.
Learning Objectives
1. Describe the accounting treatment of anticipated
uncollectible accounts receivable.
2. Describe the two approaches to estimating bad debts.
3. Describe the accounting treatment of short-term notes
receivable.
Learning Objectives
1. Describe the accounting treatment of anticipated
uncollectible accounts receivable.
2. Describe the two approaches to estimating bad debts.
3. Describe the accounting treatment of short-term notes
receivable.
4. Differentiate between the use of receivables in financing
arrangements accounted for as a secured borrowing and
those accounted for as a sale.
Learning Objective #1
Describe the accounting treatment
of anticipated uncollectible
accounts receivable.
Uncollectible Accounts
Receivable
Bad debts result from credit customers who are
unable to pay the amount they owe, regardless
of continuing collection efforts.
Uncollectible Accounts Receivable
In conformity with the matching
principle, bad debt expense should be
recorded in the same accounting
period in which the sales related to the
uncollectible account were recorded.
Learning Objective #2
Describe the two approaches to
estimating bad debts.
Uncollectible Accounts Receivable
Most businesses record an estimate of
the bad debt expense by an adjusting
entry at the end of the accounting
period.
Uncollectible Accounts Receivable
Normally classified as a selling expense and
closed at year-end.
$ 67,000 $ 1,350
Balance Sheet Approach
Aging of Receivables
Allow ance for
• EastCo’s unadjusted balance in the Uncollectible
allowance account is $500. Accounts
500
• Per the previous computation, the 850
FACTOR
(Transferee)
Secured Borrowing
On December 1, 2013, the Santa Teresa Glass Company borrowed
$500,000 from Finance Bank and signed a promissory note. Interest at
12% is payable monthly. The company assigned $620,000 of its
receivables as collateral for the loan. Finance Bank charges a finance fee
equal to 1.5% of the accounts receivable assigned.