Reporting and Analyzing Receivables Journal Entries for Accounts Receivables Write-off:

Transaction Description Journal Entry Account Title

Debit

Credit

Direct write-off method

Bad Debt Expense Accounts Receivable

XXX XXX XXX XXX XXX XXX

Bad Debt Expense To record estimated uncollectible accounts at the beginning of each year. Allowance for Doubtful Accounts To record the write-off of an uncollectible account using the allowance method for accounting for receivables To record the recovery of an uncollectible account that has already been written off earlier in the accounting period Allowance for Doubtful Accounts Accounts Receivable-client s name

Accounts Receivable-client s name Allowance for Doubtful Accounts Cash

XXX XXX XXX

Accounts Receivable-client s name XXX The Direct write-off method is not GAAP approved because it fails to match expense with the revenues in the period in which they are incurred. The allowance method is derived from an aging of the accounts receivable to determine the dollar amount of accounts receivable, which will go bad in any given fiscal period.

Journal Entries for Notes Receivables:

Transaction Description Journal Entry Account Title Debit Credit

To record the making of a notes receivable for sale of merchandise To record the making of a notes receivable in exchange for a accounts receivable To record the honoring (payment) of a notes receivable at the date of maturity when no interest has been accrued

Notes Receivable Sales Revenue Notes Receivable Accounts Receivable Cash Notes Receivable Interest Revenue

XXX XXX XXX XXX XXX XXX XXX

MJC Revised 10-2011

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Reporting and Analyzing Receivables Journal Entries for Notes Receivables continued:
Transaction Description Journal Entry Account Title

Debit

Credit

To record the honoring (payment) of a notes receivable at the date of maturity when interest has been partially accrued To record the honoring (payment) of a notes receivable at the date of maturity when interest has been fully accrued

Cash Notes Receivable Interest Receivable Interest Revenue Cash Notes Receivable Interest Receivable

XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

Interest Receivable To record accrual of interest on a notes receivable at the end of a fiscal period but before the maturity date. Interest Revenue To record the dishonoring (non-payment) of a notes receivable when it is possible that the customer will be able to repay the loan at a future date. To record the dishonoring (non-payment) of a notes receivable when there is no hope of recovery in the future. Accounts Receivable Notes Receivable Interest Receivable Allowance of Doubtful Accounts Notes Receivable Interest Receivable

Journal Entries for Credit Card Sales and Factoring of Receivables:

Transaction Description Journal Entry Account Title

Debit

Credit

To record the sale of merchandise on credit using a national credit card such as Visa or MasterCard

Cash Service Charge Expense Sales Revenue Cash Service Charge Expense Accounts Receivable

XXX XXX XXX XXX XXX XXX

To record the sale of receivables to a factor to provide a quick return of cash to the company

MJC Revised 10-2011

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