Section 3Estimating Uncollectible Accounts Receivable

Section 3Estimating Uncollectible Accounts Receivable

What You’ll Learn

How to use the percentage of net

sales method to determine the

estimated uncollectible accounts

expense.

How to use the aging of accounts

receivable method to determine

estimated uncollectible accounts

expense.

What You’ll Learn

How to use the percentage of net

sales method to determine the

estimated uncollectible accounts

expense.

How to use the aging of accounts

receivable method to determine

estimated uncollectible accounts

expense.

Why It’s Important

In order to use the allowance method,

uncollectible accounts expense is

estimated at the end of the period.

Why It’s Important

In order to use the allowance method,

uncollectible accounts expense is

estimated at the end of the period.

Key Terms

percentage of net sales method

aging of accounts receivable method

Key Terms

percentage of net sales method

aging of accounts receivable method

Section 3 Estimating Uncollectible Accounts Receivable (cont'd.)

Section 3 Estimating Uncollectible Accounts Receivable (cont'd.)

Estimating Uncollectible Accounts ExpenseEstimating Uncollectible Accounts Expense

The percentage of net sales and

the aging of accounts receivable

are two ways a business may

calculate an estimate of

uncollectible accounts expenses.

These estimates are based on

judgment and past experience.

The percentage of net sales and

the aging of accounts receivable

are two ways a business may

calculate an estimate of

uncollectible accounts expenses.

These estimates are based on

judgment and past experience.

Section 3 Estimating Uncollectible Accounts Receivable (cont'd.)

Section 3 Estimating Uncollectible Accounts Receivable (cont'd.)

Percentage of Net Sales MethodPercentage of Net Sales Method

(1) Determine the percentage.(1) Determine the percentage.

Section 3 Estimating Uncollectible Accounts Receivable (cont'd.)

Section 3 Estimating Uncollectible Accounts Receivable (cont'd.)

(2) Calculate net sales.(2) Calculate net sales.

(3) Multiply net sales by the

percentage.

(3) Multiply net sales by the

percentage.

(4) Enter the amount calculated

above on the work sheet.

(4) Enter the amount calculated

above on the work sheet.

The Aging of Accounts Receivable MethodThe Aging of Accounts Receivable Method

Section 3 Estimating Uncollectible Accounts Receivable (cont'd.)

Section 3 Estimating Uncollectible Accounts Receivable (cont'd.)

(1) “Age,” or classify and group, each account according to due date.

(1) “Age,” or classify and group, each account according to due date.

(2) Determine a percentage for each group. (2) Determine a percentage for each group.

(3) Multiply the amount per group by the percentage per group and add the results.

(3) Multiply the amount per group by the percentage per group and add the results.

(4) Enter on the work sheet the total estimated uncollectible amount (calculated above) adjusted by any balance in Allowance for Uncollectible Accounts.

(4) Enter on the work sheet the total estimated uncollectible amount (calculated above) adjusted by any balance in Allowance for Uncollectible Accounts.

Check Your UnderstandingCheck Your Understanding

Explain the aging of accounts

receivable method of estimating

uncollectible accounts expense.

Explain the aging of accounts

receivable method of estimating

uncollectible accounts expense.

Section 3 Estimating Uncollectible Accounts Receivable (cont'd.)

Section 3 Estimating Uncollectible Accounts Receivable (cont'd.)