Formulas / JE Flashcards
Accounts receivable formula
AR End. = AR Beg + Sales - collections - writte off
Formula for Allowance for Bad Debt
End Bal = beg - write off + loss expense
This is contra account to AR. Note write off affect both.
what are the “Allowance method” J/E s for write-offs?
The entry to record credit loss expense under the allowance method is to:
debit - credit loss expense
credit - allowance for credit losses account.
When a specific account is then written off:
debit - allowance for credit losses
credit - gross accounts receivable credited.
Net income is affected when credit loss expense is recognized, not at the time of the write-off. Because accounts receivable and the allowance account are decreased by the same amount, a write-off of an account also has NO EFFECT on the net amount of A/R. Hence, it has no effect on working capital (current assets, including net accounts receivable, minus current liabilities).
Under Direct write off, how are write offs accounted?
Direct write-off method:
debits bad debt expense and
credits accounts receivable when an account is written off.
Sales are recorded by a
debit to accounts receivable or cash and
credit to sales.
Accordingly, in the reconciliation of sales to cash collections, an increase in accounts receivable reflects sales without collections. Write-offs of accounts receivable likewise represent sales without collections. Consequently, the increase in accounts receivable and the accounts written off are deductions in reconciling sales to cash collections.
