session 12 - accounts receivable

Question 1

What is the net realizable value?
(the meaning, not the formula)

Answer 1

The amount of cash expected to be collected, not necessarily the amount “promised” to be paid

Question 2

What is the uncollectible accounts (bad debts, doubtful debt)?

Answer 2

It is the receivables determined to be uncollectible because debtors are unable or unwilling to pay their debts

Question 3

What are the two steps of the allowance method?

Answer 3

1. An adjusting journal entry at the end of the accounting period to record the estimated bad debt expense (debit Bad Debt Expense, credit Allowance for Bad Debt)
2. Throughout the year, write off specific accounts that are determined to be uncollectible

Question 4

What is the formula for net accounts receivable?

Answer 4

Gross accounts receivable - Allowance for bad debt = Net accounts receivable

Question 5

What does Gross accounts receivable, Allowance for bad debt, and Net accounts receivable represent in the allowance method?

Answer 5

• Gross Accounts Receivable: Amount owed by customers
• Net Accounts Receivable: Amount expected to be collected
• Allowance for Bad Debt: Amount of receivables estimated to be uncollectible

Question 6

What type of account is Allowance for Bad debt?

Answer 6

A contra asset account

Question 7

What is the journal entry for the following transaction: In January 2006, the company makes a Credit Sales of $1,000?

Answer 7

Dr. Gross Accounts Receivables (A) 1,000
Cr. Sales (IS) 1,000

Question 8

What is the journal entry for the following transaction: In July 2006, the company collects $900 in cash (for the credit sales)?

Answer 8

Dr. Cash (A) 900
Cr. Gross Accounts Receivables (A) 900

Question 9

What is the journal entry for the following transaction: At the end of 2006, the company estimates that $50 of receivables will be uncollectible?

Answer 9

Dr. Bad Debt Expense (IS/SE) 50
Cr. Allowance for Bad Debt (XA) 50

Question 10

What is the journal entry for the following transaction: In March 2007, the company learns that a customer who owes $30 will not be able to make the payment (write-off)?

Answer 10

Dr. Allowance for Bad Debt (XA) 30
Cr. Gross Accounts Receivables (A) 30

Question 11

What is the formula to get the change in allowance?

Answer 11

Change in Allowance = Provision - write-off

Question 12

What are the journal entries for the following: During Year 2, gross credit sales amounted $3,000,000 and A/R balance at the end of the year was $200,000. Continue to assume that the firm estimates 0.6% of credit sales will not be collected. Recall that write-offs for the year are $7,800.

Answer 12

Dr. Accounts Receivable (A) 3,000,000
Cr. Sales (IS) 3,000,000

Dr. Bad Debt Expense (IS/SE) 18,000
Cr. Allowance for Bad Debt (XA) 18,000

Dr. Allowance for Bad Debt (XA) 7,800
Cr. Accounts Receivable (A) 7,800

Question 13

What are the journal entries for the following: Early in Year 3, the Quiet Convincer Agency, attempting to demonstrate its talent, convinced (at no charge) a former customer whose debt had been written off in previous year to pay $1,000.

Answer 13

Dr. Accounts Receivable (A) 1,000
Cr. Allowance for Bad Debt (XA) 1,000

Dr. Cash (A) 1,000
Cr. Accounts Receivable (A) 1,000

Question 14

What are the journal entries for the following: During Year 2, gross credit sales amounted $3,000,000, A/R balance at the end of the year was $200,000, and Allowance for Bad Debt as the beginning of the year was $14,000. The firm estimates 10% of A/R will not be collected. Recall that write-offs for the year are $7,800.

Answer 14

Dr. Accounts Receivable (A) 3,000,000
Cr. Sales (IS) 3,000,000

Dr. Bad Debt Expense (IS/SE) 13,800
Cr. Allowance for Bad Debt (XA) 13,800

Dr. Allowance for Bad Debt (XA) 7,800
Cr. Accounts Receivable (A) 7,800