ACCT 240 004 10 15 Chapter 6 Bad debts result from credit customers who will not pay the amount they owe regardless of collection efforts Matching principle Bad debt expense Sales Revenue recorded in the same accounting period Most businesses record an estimate of the bad debt expense with an adjusting entry at the end of the accounting period Bad Debt expense Allowance for doubtful accounts Contra Asset account goes under accounts receivable A R minus this makes net receivables When you write off a specific uncollectable account Allowance for doubtful accounts Accounts receivable When you estimate bad debt for the year Bad Debt Expense Allowance for doubtful accounts Estimating Bad Debts Aging of Accounts Receivable As debt takes longer to receive accounts receivable slowly adjusts for it Multiply percents by totals and take the sum of those totals to reach an total A R balance that they estimate to go uncollected Accounts Receivable x Estimated uncollectable Desired Balance in Allowance account Allowance Account Credit Balance Amount of journal entry Accounts receivable x estimated uncollectible Desired balance in allowance accounts Allowance account Debit Balance Amount of journal entry E6 13 50k 3 1500 14k 12 1680 4k 30 1200 Total 4380 Bad Debt Expense 4380 Allowance for doubtful accounts 4380 Accounts Receivable 68 000 Allowance for doubtful accounts 4380 Net Receivables 63 620 Bad debt expense 4380 Receivables Turnover Receivables Turnover Net Sales Average Net Trade Receivables This ratio measures how many times average receivables are recorded and collected for the year Average Collection period 365 Receivables turnover Average Collection Period 365 7 6 48 days Cash and Cash Equivalent Cash Checks money orders bank drafts t bills certificates of deposit Internal Control of cash Properly accounts for assets safeguard assets ensure the accuracy of financial records Bank Reconciliation Balance per bank Deposits in transit Outstanding Checks Bank Errors Correct Balance Balance per Book Deposits by bank credit memos Service charge NSF Checks Book Errors Correct Balance Bank Reconciliation Balance Per Bank 9610 500 2417 28 486 Total 7207 Balance Per Company 7430 Interest 30 Recording Error 28 NSF Check 225 Total 7207 Cash 30 Interest Revenue 30 Supplies Inventory 28 Accounts receivable 225 Cash 253