Practice accounts receivable accounting including bad debt expense, the allowance method, direct write-off, aging analysis, and notes receivable. Free questions.
Start practising now — it's free Read study guidesAccounts receivable represents amounts owed by customers who purchased on credit. The accounting extends well beyond recording the initial sale — it requires estimating how much may ultimately prove uncollectable and recording that estimate as bad debt expense.
Under the allowance method (required by GAAP), companies estimate uncollectable accounts and record an allowance for doubtful accounts — a contra-asset that reduces the net carrying value of receivables. Estimates can use a percentage of credit sales or an aging analysis that assigns different uncollectable rates based on how long receivables have been outstanding.
Notes receivable, interest revenue recognition, and the calculation of days sales outstanding (a key efficiency ratio) are also covered in this topic area.
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