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Cayetano
CHAPTER 2: “Trade & Other Receivables” Q: How to compute the allowance for bad debt and bad debt expense?
Topic 1: “Trade Receivable & Allowances” Step 1 – Compute for ending allowance:
Ending balance of accounts receivable – gross XX
Percentage of uncollectiblity X%
Q: How to compute the accounts receivable balance?
Balance of allowance for bad debt XX
A: First, check if the given is the beginning balance and not the ending balance. The if yes,
do it using the “accounts receivable – gross” T –account.
Step 2 – Compute for bad debt expense
Trade Receivable – gross Allowance for bad debt
Beginning balance XX Beginning balance of allowance
(a) Sale on account (a) Collection of accounts receivable Accounts written off XX XX Recovery of accounts written off
(b) Recovery of written of receivables (b) Collection of recovery Bad debt expense
(c) Freight FOB shipping point, prepaid (c) Write off of accounts receivable
XX Ending balance of allowance
(d) Discount taken by customers
(e) Sales actually returned
(f) Other form of payment Squeeze
Ending balance (answer)
Method 2 – percentage of sales
Step 1 – Compute the bad debt expense:
Second. check if the given is the ending balance, it will be the unadjusted ending accounts
receivable that you have to adjust. Below are the usual adjustment to the unadjusted Sales XX
balance. Percentage of uncollectibility X%
Unadjusted accounts receivable XX Bad debt expense XX
1. Reversal of customers: postdated checks / NSF check / stale check XX
2. “netted” debit balance of customer’s account XX Step 2 – Compute the ending allowance:
3. Unrecorded sales return (XX)
4. Adjustment for goods sold still in-transit
Allowance for bad debt
§ FOB shipping point, (+) if not recorded, do nothing if recorded
XX Beginning balance of allowance
§ FOB destination, (–) if recorded, do nothing if not recorded XX/(XX)
Accounts written off XX XX Recovery of accounts written off
Adjusted accounts receivable (answer)
XX Bad debt expense
Ending balance of allowance
Answer
Subscription Receivable:
Allowance for bad debt
ü Contra-equity – if silent, or collectible beyond 12 months.
XX Beginning balance of allowance
Accounts written off XX XX Recovery of accounts written off ü Current receivable – if collectible within 12 months.
Bad debt expense
XX Ending balance of allowance General Assumption (silent)
Current Noncurrent
Squeeze (a) Trade receivable less allowances (1) Advances to affiliates
(b) Note receivable less note discounted (2) Advances to associates
Q: How to compute the percentage of uncollectiblity? (c) Accrued income (3) Advances to subsidiary
i. Rent receivable
Total write off over the period – total recovery over the period
= % of uncollectilibity ii. Interest receivable
Net sales over the period
iii. Commission receivable
iv. Dividend receivable
Q: What is the NRV of accounts receivable? (d) Postdated / NSF / Stale checks (4) Advances to officers
• The question is the same as: (e) IOUs (5) Advances to shareholders
1. How much is the amortized cost of the accounts receivable? (f) Loans receivable
2. How much is the carrying amount of the accounts receivable? (g) Advances to employees
3. How much is the book value of the accounts receivable? (h) Advances to personnel
(i) Advances to suppliers
Accounts receivable at December 31 XX (j) Accounts receivable – assigned
(a) Allowance for doubtful accounts (XX) (k) Accounts receivable – pledged
(b) Allowance for estimated sales discount to be taken (XX)
(l) Claims from insurance
(c) Allowance for estimated sales to be returned (XX)
(m) Claims from common carrier
(d) Allowance for freight (sold FOB destination, freight collect) (XX)
(n) Suppliers’ debit balance
NRV of Accounts receivable at December 31 XX
2 Non-interest Present value of the Effective interest None Amortized cost Carrying amount, end Carrying amount, end
bearing principal less: noncurrent portion x effective interest + 1
current portion less: any principal pay.
Carrying amount at beg forever zero Fair value / beg CA noncurrent portion
Principal x PVF x effective interest x effective interest + 1
interest revenue less: any principal payment Note – it is easier if you Note – you will
use the effective interest in carrying amount at end compute first the separate the note into
getting the PVF noncurrent portion then current and non
the residual is the current only if it is a
current portion serial note or note
were the principal is
payable on
installment.
3 Interest bearing Present value of the Effective interest Nominal interest Amortized cost Carrying amount, end Carrying amount, end
with unrealistic principal plus present value less: noncurrent portion x effective interest + 1
nominal interest of nominal interest. current portion less: nominal interest
Carrying amount at beg Unpaid principal Fair value / beg CA less: any principal pay.
Principal x PVF x effective interest x nominal interest x effective interest + 1 Note – it is easier if you noncurrent portion
in case nominal + interest revenue x # of mos. from last less: nominal interest compute first the
is not equal to Principal x nominal x PVF interest payment up to less: any principal payment noncurrent portion then Note – separate only if
effective December 31 / 12 mo carrying amount at end the residual is the serial note or note on
use the effective interest in interest receivable current portion installment
getting the PVF