Write-off the Uncollectible Account Receivable (Penghapusan Piutang)

MATERIALS

Write-off the Uncollectible Account Receivable

Alita Arifiana Anisa (27 April 2012)

The account receivable become uncollectible when the receivable cannot be collected based on verified reason. To record that possible condition there are two kinds of method to record the uncollectible account receivable, namely:

1.      Direct Write-off Method

Under the direct write off method when the account receivable determined is uncollectible, the loss is charged to bad debt expense directly to account receivable on the specific period the transaction happened.

Feb 21	Bad Debts Expenses	$ 100
	Account Recevable		$100

2.      Allowance Method

The allowance method of accounting for bad debts involves estimating uncollectible account receivable at the end of the period. The estimation can be from three ways, they are:

a.       Percentage of Sales

In the percentage of sales basis, management estimates what percentage of credit sales will be uncollectible. The percentage is based on the past experience and anticipated credit policy.

b.      Percentage of Receivable

In the percentage of receivable basis, management estimates what percentage of receivable will be uncollectible. The percentage is based on the past experience.

c.       Age of Receivable

In the age of receivable basis, the age schedule is prepared. The receivables are classified to two categories, not yet due and days past due, where the days past due is classified more specific based on the length of days they have been unpaid.

            The example of Receivables’ Age schedule:

Customers	Total	Not Yet Due	Days Past Due
			1-30	31-60	61-90	Over 90
Saras	$ 3600	$ 2600		$ 1000
Nurmi	$ 6100	$ 4500	$ 1000			$600
Irfan	$ 4200	$ 2200			$2200
Total	$ 13900	$ 9300	$1000	$1000	$2200	$600
Estimation percentage		2%	5%	10%	15%	25%
Total estimated uncollectibles	$ 816	$ 186	$  50	$ 100	$ 330	$ 150

            The recording for estimates uncollectible account receivable:

Des 31	Bad Debts Expenses	$ 175
	Allowance for Doubtful Account		$175

           

The recording for the write off account receivable:

Des 31	Allowance for Doubtful Account	$ 110
	Account Receivable		$110

Case for Exercise:

1.      In feb, 10^th 2012, Monster,Inc. writte of the $579 account receivable owed by Mr.Randals because he was died last week. Prepare the journal entry based on direct write-off methods!

2.      In the end of December 2011, Monster,Inc. estimates that 10% of its credit sales will be uncollectible, where the balance of its credit sales is $ 9890. Prepare the journal entry for this case!

3.      In April,19^th 2012, Mr.Flying Dutchman, the owner of Monster,Inc authorizes a write off of the $190 account receivables owed by Miss.Boo. Prepare the journal entry for the transaction!

4.      Aging Schedule:

Customers	Total	Not Yet Due	Days Past Due
			1-30	31-60	61-90	Over 90
Saras	$ 500	$  300	$150	$ 150	-	-
Nurmi	$ 900	$  550		$ 350	-	-
Total	$ 1400	$  850	$150	$ 500	-	-
Estimation percentage		1%	10%	25%	30%	50%
Total estimated uncollectibles	???	?	?	?	-	-

Based on the aging schedule above prepare the journal entry to record the estimation of the uncollectible account receivables of Monster,Inc.

5.      In April,21^st 2012, Monster,Inc write off  $413 of Mrs.Pitty because she is now unidentified. Prepare the journal entry under the allowance method!

Answer for the Cases:

1.      The journal entries:

Feb 10	Bad Debts Expenses	$ 579
	Account Recevable		$579

2.      The journal entries:

Des 31	Bad Debts Expenses	$ 989
	Allowance for Doubtful Account		$989

3.      The journal entries:

Des 31	Allowance for Doubtful Account	$ 190
	Account Receivable		$190

4.      Aging schedule

Customers	Total	Not Yet Due	Days Past Due
			1-30	31-60	61-90	Over 90
Saras	$ 500	$  300	$150	$   50	-	-
Nurmi	$ 900	$  500	$ 50	$ 350	-	-
Total	$ 1400	$  800	$ 200	$ 400	-	-
Estimation percentage		1%	10%	25%	30%	50%
Total estimated uncollectibles	$ 128	$ 8	$20	$100	-	-

The journal entries:

Des 31	Bad Debts Expenses	$ 128
	Allowance for Doubtful Account		$128

5.      The journal entries:

Des 31	Allowance for Doubtful Account	$ 413
	Account Receivable		$413

References :

Weigant, Jerry n Friends. 2002. Accounting Principles. United States of America : John Wiley & Sons, Inc.

Somantri, Hendi. 2007. Memahami Akuntansi SMK seri B Bidang Keahlian Bisnis dan Manajemen Program Keahlian Akuntansi. Bandung : CV.ARMICO.