Accounting For

Receivables

Prepared By: Muhammad Furquan

 What is Receivables???

 Benefits?

(Increase Sales)

 Issues?
 How to Record Sales Discount
 How to Record Doubtful Accounts
 Sales Discount

 Contra Revenue Account

 Difference with Trade Discount

 2/10, n/30 (Discounting Terms)

 Its after execution of Sales

 Methods to Record Sales Discount

 Gross Method (Client normally don’t avail Discount)

 Net Method (Client normally avail Discount)

Example:
 1. Jan-01: Mr. A sold 500 units @ $20 each under 3/10, n/30 to Mr. C

Gross Method
Date Particulars Debit Credit
Jan-01 Account Receivables $10,000
Sales $10,000

Net Method
Date Particulars Debit Credit
Jan-01 Account Receivables $9,700
Sales $9,700
Example: Paid within Discounting Period
 2. Jan-09: Mr. C paid the payment

Gross Method
Date Particulars Debit Credit
Jan-09 Cash $9,700
Sales Discount $300
Account Receivables $10,000

Net Method
Date Particulars Debit Credit
Jan-09 Cash $9,700
Account Receivables $9,700
Example: Paid after Discounting Period
 2. Jan-09: Mr. C paid the payment

Gross Method
Date Particulars Debit Credit
Jan-09 Cash $10,000
Account Receivables $10,000

Net Method
Date Particulars Debit Credit
Jan-09 Cash $10,000
Account Receivables $9,700
Forfeited Discount $300
 Doubtful Accounts (Bad Debts)

 What is Doubtful Accounts??

 Steps:
1. Estimate the amount of Doubtful Accounts
2. Adjusting Entry
3. Write of Doubtful Accounts
Methods for estimating Doubtful
Accounts
 There are two methods:

 % of Sales

 % of Receivables (Aging Schedule)

 % of Sales
Feb-01 A company conducted sales of $200,000 out of which 70%
on credit. The company estimates 4% as doubtful accounts.

Doubtful Accounts Calculation:

 70% of $200,000 = $140,000
 4% of $140,000 = $5,600

Date Particulars Debit Credit

Feb-01 Cash $60,000
Account Receivables $140,000
Sales $200,000

Date Particulars Debit Credit

Feb-01 Bad Debt Expense $5,600
Allowance for Bad Debts $5,600
 % of Receivables
 B&B has three major clients, A, B& C. During the year the company did
credit sales of $10,000 to Mr. A, $25,000 to Mr. B and $50,000 to Mr. C. The
accounts department generates the following information for the invoice which
are overdue.
 $6,000 are overdue by 33 days while the rest not yet due.
 Only $5000 are overdue by over 90 days of Mr. B, rest not due
 50% the invoices of Mr. C are not yet due, while the remaining are overdue by
66 days
 The Company Estimates 1% uncollectible amount for the invoices which are
not yet due, 5% which are over due to 60 days, 10% which are overdue to 90
& 25% of the amount after 90days.

 Prepare Aging Schedule.

 Aging Schedule

OverDue
Customers Total Amount Not Yet Due
0-60 Days 61-90 days Over 90 Days
A $10,000 $4,000 $6,000 $0 $0
B $25,000 $20,000     $5,000
C
$50,000 $25,000   $25,000  
  $85,000 $49,000 $6,000 $25,000 $5,000

1% 5% 10% 25%
Bad Debts Estimates
$490 $300 $2,500 $1,250 $4,540
 Written off and Recovery
Feb-01 A company conducted sales of $200,000 out of which 70%
on credit. The company estimates 4% as doubtful accounts.

Feb-19 Company write off its 50% doubtful accounts.

Feb-27 Company recovers 20% payments from its written off

account
 Written off and Recovery

Date Particulars Debit Credit

Feb-19 Allowance for Bad Debts $2,700
Account Receivables $2,700

Date Particulars Debit Credit

Feb-27 Account Receivable $560
Allowance for Bad Debts $560

Date Particulars Debit Credit

Feb-27 Cash $560
Account Receivables $560
 % of Receivables
 B&B has four major clients, A, B, C & D. During the year the company did credit sales
of $15,000 to Mr. A, $25,000 to Mr. B, $35,000 to Mr. C and $50,000 to Mr. D. The
accounts department generates the following information for the invoice which are
overdue.
 70% of the invoices of Mr. A are overdue by 20 days while the rest are over due by
55days.
 $5000 are overdue by over 90 days of Mr. B.
 50% of the invoices of Mr. c are overdue by 40 days while the 50% of the rest are over
due by 75days.
 All the invoices of Mr. D are not yet due.

 The Company Estimates 1% uncollectible amount for the invoices which are not yet
due, 5% which are over due by 30 days, 10% which are overdue by 31-60 days, 15%
for the invoice which are more then 60days but less than 90 days overdue and 25% of
the amount after 90days.
 Prepare Aging Schedule.
THANKYOU