Accounts receivable
Change receivables to account receivables Accounts Receivable or usually oral promises to pay a company by a customer usually mature between 30 and 60 days. They are extremely important for operating cycle. Different company though all recognize in value account Receivable differently.The company with customers or Partners that are less reliable may need to expense differently due to risk. Recording the writing off on uncollected account requires to journal entries
Allowance for doubtful accounts
Accounts receivable
Your credit the account receivable because you’ve estimated that is most likely not to receive payment on that amount of purchase. To incentivize quick payment by your customers and partners you may implement a cash discount or a sales discount for companies to pay within 30 days. This is where the gross method and the net method come into play.Since there is a variable in how you recognize the counter so you’ll need to choose one or the other and be consistent with out your work.
Gross method versus net method Example:
Waiting for payment from a Customer for $5000 with terms 2% discount paid in 10 days while the rest is due within 30 days (n/30).
| Gross method sales | |||
|---|---|---|---|
| DR | Accounts Receivable | $5,000 | |
| CR | Sales revenue | $5,000 | |
| $3000 paid before discount expires | |||
| DR | Cash | $2,940 | |
| DR | Sales discount | $60 | |
| CR | Accounts receivable | $3,000 | |
| $1000 after the discount period | |||
| DR | Cash | $1,000 | |
| CR | Accounts Receivable | $1,000 | |
| Net method | |||
| DR | Accounts receivable | $4,900 | |
| CR | Sales revenue | $4,900 | |
| $3000 paid before discount expires | |||
| DR | Cash | $2,940 | |
| CR | Accounts Receivable | $2,940 | |
| $1000 after the discount period | |||
| DR | Cash | $1,000 | |
| CR | Accounts Receivable | $960 | |
| CR | Sales discount forfeited | $40 |
Direct write off method for uncollected accounts
Allowance method for uncollectible accounts