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Unformatted text preview: ACCOUNTS RECEIVABLE AND BAD DEBT Accounts Receivable represents money owed to the business from customers for the sale of products or services. The Allowance for Bad Debts (a contra asset) represents what portion of the accounts receivable that the business does not expect to be able to collect. Net Realiable Value (NRV) is the amount the business does expect to be able to collect and is calculated by subtracting the balance in the Allowance for Bad Debts from the Accounts Receivable. Bad Debt Expense is the amount recorded as uncollectible. Beginning A/R: $800,000 Beginning Allowance for Bad Debts: $190,000 Sales during the year: $6,500,000 Of these sales, 75% were credit sales. Collections during the year: $4,540,000 Write-offs during the year: $162,000 Collections during the year that were received after an account had been written off: $15,000 The following are the journal entries for this year's events. Notice how they are alike or different depending on whether the direct or allowance method is used to account for bad debt expense. Look at the two accounts (Accounts Receivable and Allowance for Bad Debts) to see how these transactions affect the accounts. I would recommend learning the basic journal entries and how to calculate the amounts.to see how these transactions affect the accounts....
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This note was uploaded on 04/02/2008 for the course ACTY 2100 taught by Professor Hetzel during the Spring '08 term at Western Michigan.
- Spring '08