{"id":47429,"date":"2025-11-19T14:06:07","date_gmt":"2025-11-19T14:06:07","guid":{"rendered":"https:\/\/certifeka-edu.com\/programs\/finance-for-strategic-managers-accounting-professional-certificate-3\/lessons\/lesson-6-how-companies-value-accounts-receivable-and-record-their-disposition-3\/"},"modified":"2025-11-19T14:06:07","modified_gmt":"2025-11-19T14:06:07","slug":"lesson-6-how-companies-value-accounts-receivable-and-record-their-disposition-3","status":"publish","type":"lesson","link":"https:\/\/certifeka-edu.com\/ar\/programs\/finance-for-strategic-managers-accounting-module\/lessons\/lesson-6-how-companies-value-accounts-receivable-and-record-their-disposition-3\/","title":{"rendered":"Lesson 6: How Companies value accounts receivable and record their disposition."},"content":{"rendered":"

\"\"\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/p>\n

Lesson 6: Understanding Account receivables
\n<\/h2>\n

How Companies value accounts receivable and record their disposition.
\n<\/h3>\n

Companies report accounts receivable on the balance sheet as an asset. But determining the amount to report is sometimes difficult because some receivables will become uncollectible this credit losses recorded as Bad Debt Expense<\/h5>\n

There are 2 methods in accounting for valuing uncollectable accounts:
\n<\/h3>\n
\n\n\t\t\t\t\t Direct write-off method foruncollectible accounts:
\n\t\t\t<\/path><\/svg>
\n\t\t\t<\/path><\/svg>
\n\t\t\t\t\t\t<\/summary>\n
when a company determines a particular account to be uncollectible, it charges the loss to Bad Debt Expense.<\/h5>\n
Example, Warden Co. writes off as uncollectible M. E. Doran’s $200 balance on December 12. Warden’s entry is as follows:<\/h5>\n

\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\"\"\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/p>\n

Note: Unless bad debt losses are insignificant, the direct write-off method is not acceptable for financial reporting purposes, as bad debt expense recorded in a period different from the period in which they record the revenue opposing the matching principle. Nor does the receivable balance in the balance sheet reflects the amount the company actually expects to receive.<\/h5>\n<\/details>\n
\n\n\t\t\t\t\t Allowance method for uncollectible accounts:
\n\t\t\t<\/path><\/svg>
\n\t\t\t<\/path><\/svg>
\n\t\t\t\t\t\t<\/summary>\n
The allowance method of accounting for bad debts involves estimating uncollectible accounts at the end of each period and reduces receivables in the balance sheet by the same amount.<\/h5>\n
GAAP requires the allowance method for financial reporting purposes when bad debts are material in amount<\/h5>\n
The allowance method has three essential features:<\/h5>\n
Companies estimate uncollectible accounts receivable. They match this estimated expense against revenues in the same accounting period in which they record the revenues.<\/h5>\n
Example: The credit manager estimates that $12,000 of these sales will be uncollectible.<\/h5>\n
Companies debit estimated uncollectible to Bad Debt Expense (Reported in the income statement as an operating expense – usually as a selling expense) and credit them to Allowance for Doubtful Accounts (contra account to Accounts Receivable) through an adjusting entry at the end of each period.<\/h5>\n

\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\"\"
\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\"\"
\n\t\t\t\t\t<\/details>\n

when a company determines a particular account to be uncollectible, it charges the loss to Bad Debt Expense.<\/h5>\n
Example, Warden Co. writes off as uncollectible M. E. Doran’s $200 balance on December 12. Warden’s entry is as follows:<\/h5>\n

\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\"\"\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/p>\n

Note: Unless bad debt losses are insignificant, the direct write-off method is not acceptable for financial reporting purposes, as bad debt expense recorded in a period different from the period in which they record the revenue opposing the matching principle. Nor does the receivable balance in the balance sheet reflects the amount the company actually expects to receive.<\/h5>\n
The allowance method of accounting for bad debts involves estimating uncollectible accounts at the end of each period and reduces receivables in the balance sheet by the same amount.<\/h5>\n
GAAP requires the allowance method for financial reporting purposes when bad debts are material in amount<\/h5>\n
The allowance method has three essential features:<\/h5>\n
Companies estimate uncollectible accounts receivable. They match this estimated expense against revenues in the same accounting period in which they record the revenues.<\/h5>\n
Example: The credit manager estimates that $12,000 of these sales will be uncollectible.<\/h5>\n
Companies debit estimated uncollectible to Bad Debt Expense (Reported in the income statement as an operating expense – usually as a selling expense) and credit them to Allowance for Doubtful Accounts (contra account to Accounts Receivable) through an adjusting entry at the end of each period.<\/h5>\n

\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\"\"
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