Lecture_Notes_-_Assign_5_1

2 accounts receivable method the accountant reviews

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2. Accounts receivable method – The accountant reviews the accounts receivable and estimates a dollar amount of those that will be uncollectible. The accounts receivable appears on the balance sheet with the allowance for doubtful accounts (a contra asset like depreciation). The allowance for doubtful accounts is a permanent account, so there is an amount already in the account. The estimate is the amount that should be in the account. The adjusting entry figure must be for the difference between the amount in the account and the amount which should be in the account. To further complicate matters, the amount already in the account can have either a debit or credit balance. Example: The Allowance for Doubtful Accounts has a credit balance of $400. Analysis indicates doubtful accounts of $5,000. Solution: Allowance for DA │ 400 beginning balance │4,600 adjustment │5,000 ending balance Adjusting Entry: Dr Uncollectible Accounts Expense 4,600 Cr Allowance for Doubtful Accounts 4,600 This adjusting entry sets up the account for the next period. As the period rolls along, accounts deemed to be uncollectible are written off in the follow manner. Journal Entries: 1. To write-off an account Dr Allowance for Doubtful Accounts Cr Accounts Receivable 2. To reinstate an account. Occasionally, after an account is written off, a customer will make a payment on the account. First, the amount has to be put back in
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accounts receivable and second, the receipt of cash is recorded. Two entries are made for the reinstatement. Dr Accounts Receivable Cr Allowance for Doubtful Accounts (To put the amount back into accounts receivable.) Dr Cash Cr Accounts Receivable (To record the receipt of cash.) Notes Receivable
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