Account Receivables Accounts Receivable Three accounting issues 1

Account Receivables

Accounts Receivable Three accounting issues: 1. Recognizing accounts receivable. 2. Valuing accounts receivable. 3. Disposing of accounts receivable. Recognizing Accounts Receivable u Service organization - records a receivable when it provides service on account. u Merchandiser - records accounts receivable at the point of sale of merchandise on account.

Accounts Receivable Methods of Accounting for Uncollectible Accounts Allowance Method Direct Write-Off Theoretically undesirable: Losses are estimated: u No matching. u Better matching. u Receivable not stated at cash realizable value. u Receivable stated at cash realizable value. u Not acceptable for financial reporting. u Required by IFRS.

Balance Sheet Presentation Assets: Cash Accounts Receivable Supplies PP&E Total Assets The Allowance for Doubtful Accounts is a contra asset that 20, 000 100, 000 2, 500 3, 000 3, 120, 500

Balance Sheet Presentation Assets: Cash Accounts Receivable 100, 000 Less Allowance for DA 2, 000 Net Accounts Receivable Supplies PP&E Total Assets 20, 000 98, 000 2, 500 3, 000 3, 120, 500 Note: Accounts Receivable is NOT reduced but the net receivable is!

Aging of Accounts Receivable While the percentage of credit sales method focuses on estimating Bad Debt Expense (income statement approach) for the period, the aging of accounts receivable method focuses on estimating the ending balance in the Allowance for Doubtful Accounts (balance sheet approach). The aging method gets its name because it is based on the “age” of each amount in Accounts Receivable at the end of the period. The older and more overdue an account receivable becomes, the less likely it is to be collectible. 8 -6

Aging of Accounts Receivable Skechers applies the aging of accounts receivable method to its Accounts Receivable balances on March 31, the end of its fiscal quarter. The method includes three steps: (1) Prepare an aged list of accounts receivable, (2) Estimate bad debt loss percentages for each category, and (3) Compute the total estimated bad debts. Step 1 8 -7 Age Accounts Receivable.

Aging of Accounts Receivable Step 2 8 -8 Estimate bad debt loss percentages for each category.

Aging of Accounts Receivable Step 3 8 -9 Compute the total estimated bad debts.

Aging of Accounts Receivable AJE = ($17, 240 - $15, 000) = $2, 240 8 -10

Allowance Method • An estimate can be based on: a) b) c) d) Size of the receivables Age of the receivables Past loss experience All of the above

Konfirmasi piutang Konfirmasi positip Konfirmasi negatip • • Cocok tidak cocok jawab Jumlah individual besar Internal control lemah Debitur tidak banyak Jawab jika tidak cocok Nilai kecil 2 Internal control baik Debiturnya banyak