Receivables

Question 1

What are the JE for bad debt expense under Direct Write-Off method?

Answer 1

To record a bad debt:
Dr: Bad Debt Expense
Cr: Accounts Receivable

To record recovery of bad debt
Dr: Cash
Cr: Bad Debt Recovered

Question 2

What are the JEs for bad debt expense under the Allow for Uncollectible Debt method?

Answer 2

To record allowance for bad debt at the end of the year
Dr: Bad Debt Expense
Cr: Allowance for doubtful debts

Write off of uncollectible debts
Dr: Allowance for Doubtful Debt
Cr: A/R

Subsequent recovery of bad debt
Dr: A/R
     Cr: Allowance for doubtful debt
Dr: Cash 
      Cr: A/R

Question 3

What is the aging method what does the ending balance of Allowance for Doubtful Debt equals?

Answer 3

Allowance balance = Gross A/R - Net Realizable value of A/R
=> Beg Bal of Allow - Allow written off + Bad debt expense + recoveries = Gross A/R - Net Realizable value of A/R

(Because Allowance for doubtful debt is a contra to Accounts Receivable)

Question 4

What does the aging method of calculating uncollectible allowance calculate?

Answer 4

Required ending allowance balance based on the aging schedule. Preadjustment ending allowance for uncollectible may be different than above

Question 5

What is the risk of accounting loss on net receivables?

Answer 5

It is credit risk that is the amount owed on net receivable net of allowance for uncollectible accounts will not be recovered.

Question 6

What is off balance sheet risk of net receivalbles?

Answer 6

This is the amount of risk of loss that does not show on the balance sheet. In case of net receivables it will be $0 because all of net receivables show on Balance sheet.

Question 7

Increase in A/R =?

Answer 7

Sales - Cash Collection - Write off

therefore Cash collection =Sales - Increase in A.R - Write off.

Question 8

What is the affect on total assets, NI and Working Capital of account written of under allowance for uncollectible methods?

Answer 8

There is not affect on all the three. The JE does not have an income account so no affect on NI and since allowance and A/R both are reduced with the same amount there is no affect on total assets or WC either