Week 4 Internal Control Cash and Receivables Discussion Accounting for and Reporting Receivables graded Receivables constitute an important line item on a company s balance sheet In this thread we will discuss the accounting for receivables the ways to estimate uncollectible accounts and how companies manage their receivables How do companies account for the possibility that some of their customers might not pay down the road Responses Responses are listed below in the following order response author and the date and time the response is posted Response Date Time Author W el co m e to w ee k 4 th re a de d di sc us si o ns Professor Wilson 3 10 2013 11 06 27 AM As we consider start week 4 postings please consider the following Receivables constitute an important line item on a company s balance sheet In this thread we will discuss the accounting for receivables the ways to estimate uncollectible accounts and how companies manage their receivables How do companies account for the possibility that some of their customers might not pay down the road Class Prof Wilson Geri Waldbillig 3 24 2013 12 59 40 PM R E W el c o m e to w ee k 4 th re a d e d di sc u ss io n s When the Customer Won t Pay First things first Fend off collections problems from the start by running credit checks on new clients and by discussing your prices service fees and payment requirements with new customers before you do their work If you work on a retainer basis or provide services under a contract make it clear what services you will charge for what deliverables the customer will get for the fee and what work will incur additional charges Be sure to let the customer know how often you will bill and how long they will have to pay each bill Put it all in writing and be sure to include a section about your rights and responsibilities regarding ownership of products intellectual property or records of work you perform if bills are not paid Have your attorney draw up a boilerplate agreement that will work for most customers or clients Keep an eye on receivables Send out your invoices promptly at regularly scheduled intervals Be sure the client can tell that your mailing is not just another routine reminder You may want to stamp the envelope Invoice Enclosed so it doesn t accidentally get thrown out Send out reminder notices promptly to any client who doesn t pay within a predetermined time frame usually ten to 30 days If a client still doesn t pay after reminders are sent have someone from your accounts receivable department call the late payer and try to determine the cause If you don t have an accounts receivable department have a spouse secretary or bookkeeper play the role If the customer is one you want to keep and is worth keeping using such an intermediary will make it easier to maintain a good working relationship with the customer after the bills get paid Attard Janet When the Customer Won t Pay Businessknowhow com Retrieved March 24 2013 from http www businessknowhow com money wontpay htm Kristin Muchowski 3 24 2013 4 35 09 PM R E W el c o m e t o w e e k 4 t h r e a d e d d is c u ss io n s A company must account for a specific percentage or dollar amount that they will not receive uncollected debit that they must include in their transactions Expenses decrease stockholders equity and stockholders equity decreases with debits uncollectible accounts expense was debited The allowance for uncollectible accounts was credited because the company s resources decreased Since assets increase with debits they decrease with credits The allowance for uncollectible accounts is an asset account Inasmuch as it usually has a credit balance as opposed to most assets with debit balances the allowance for uncollectible accounts is called a contra asset account It is important to note why companies use the allowance for uncollectible accounts rather than simply using accounts receivable At the time uncollectible accounts expense is estimated accounts receivable can not be decreased immediately because the specific customers who will not pay are not known at that time Since the specific customers are not known customer accounts in the accounts receivable subsidiary ledger can not be reduced Thus since the accounts receivable subsidiary ledger can not be reduced accounts receivable in the general ledger can not be reduced or the two ledgers would not be in agreement Remember the total of all accounts in the accounts receivable subsidiary ledger equals the balance in accounts receivable in the general ledger Both the accounts receivable subsidiary ledger and the accounts receivable account in the general ledger will be reduced when the company identifies the specific customers who will not pay Thus in order to prevent the accounts receivable subsidiary ledger from not agreeing with accounts receivable in the general ledger estimated uncollectible accounts receivable are recorded in the allowance for uncollectible accounts rather than directly reducing accounts receivable When posted to the general ledger the process of recording uncollectible accounts receivable and the uncollectible accounts expense affects the following accounts Accounts Receivable 50 000 Allowance for Uncollectible Accounts 750 Uncollectible Accounts Expense 750 http faculty uml edu ccarter Chapter07Part3 htm RE Welcome to week 4 threaded discussions Rachid Khalfaoui 3 24 2013 4 29 50 PM Hi Pr Wilson and class Receivables are amounts due from customers of the company They are located in a balance sheet account called accounts and notes receivable The uncollected accounts create a need for funding that business can be conducted to cover a loan from a bank if its cash flow projections were too optimistic Also the company can appeal to factoring which is a financing technique and debit recovery implementation by companies of obtaining advance funding and outsource the management to a specialized credit institution the factor Factoring is the last action of companies against customers who have not paid their bills before initiating a legal procedure Before all these appeals the company first manages its receivables which involve five steps Text book page 412 Determine to whom to extend credit establish a payment period monitor collections evaluate the liquidity of receivables and accelerate cash receipts from receivables when necessary With uncollectible accounts companies charge the loss to bad debts expense it s net loss This is the Direct Write Off
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