Account Receivable
Financial Accounting
Week 3 Lecture Summary
Accounting for Receivables
Definition
Receivables are amounts due from other persons or entities. Receivables are highly liquid, which means it is expected that they will be converted into cash quickly, and are classified as current assets.
Types of Receivables
Accounts Receivable: amounts due from customers for sales on credit.
Businesses sell to customers on credit in an attempt to increase their sales. Also called
Trade Debtors.
Bills Receivable: similar to accounts receivable but bills receivable are a legal instrument. Interest is charged on the bill receivable and it usually gives more time to pay than accounts receivable. interest receivable, rent receivable
Accounts Receivable
Recognition of accounts receivable
Recorded when goods/services are provided on credit (at time of sale) invoice provides evidence of the sale
Valuation of accounts receivable be collected are called bad debts (some customers cannot pay their account, other customers will not pay their account) is expected to be collected ess to estimate the amount of receivables that will become bad debts
Bad and Doubtful Debts
When a business sells on credit there are usually some customers who do not pay their account. These uncollectable accounts are called bad debts and are an expense of selling on credit.
There are 2 methods that can be used to account for bad debts:
1. The Direct Write-off Method
2. The Allowance Method
Page 1
Financial Accounting
Week 3 Lecture Summary
1.
The Direct Write-off Method
Under this method the bad debt is recorded as an expense at the time that it is determined to be uncollectable. This can happen at any time during the accounting period. The entry to record the bad debts expense is:
Date
Details
Debit Credit
Bad debts expense XXX
GST Collections
XX
Accounts receivable
XXXX
Write off account as bad
Under this method bad debts are NOT estimated at the end of the
Week 3 Lecture Summary
Accounting for Receivables
Definition
Receivables are amounts due from other persons or entities. Receivables are highly liquid, which means it is expected that they will be converted into cash quickly, and are classified as current assets.
Types of Receivables
Accounts Receivable: amounts due from customers for sales on credit.
Businesses sell to customers on credit in an attempt to increase their sales. Also called
Trade Debtors.
Bills Receivable: similar to accounts receivable but bills receivable are a legal instrument. Interest is charged on the bill receivable and it usually gives more time to pay than accounts receivable. interest receivable, rent receivable
Accounts Receivable
Recognition of accounts receivable
Recorded when goods/services are provided on credit (at time of sale) invoice provides evidence of the sale
Valuation of accounts receivable be collected are called bad debts (some customers cannot pay their account, other customers will not pay their account) is expected to be collected ess to estimate the amount of receivables that will become bad debts
Bad and Doubtful Debts
When a business sells on credit there are usually some customers who do not pay their account. These uncollectable accounts are called bad debts and are an expense of selling on credit.
There are 2 methods that can be used to account for bad debts:
1. The Direct Write-off Method
2. The Allowance Method
Page 1
Financial Accounting
Week 3 Lecture Summary
1.
The Direct Write-off Method
Under this method the bad debt is recorded as an expense at the time that it is determined to be uncollectable. This can happen at any time during the accounting period. The entry to record the bad debts expense is:
Date
Details
Debit Credit
Bad debts expense XXX
GST Collections
XX
Accounts receivable
XXXX
Write off account as bad
Under this method bad debts are NOT estimated at the end of the