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Accounts Receivable Notes

Accounts Receivable (A/R) represents money owed to a business by customers for credit sales, including trade receivables and notes receivable. Key concepts include the allowance for doubtful accounts and bad debt expense, which help estimate uncollectible accounts. Proper management of A/R is crucial for maintaining cash flow, profitability, and minimizing bad debt risks.

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39 views2 pages

Accounts Receivable Notes

Accounts Receivable (A/R) represents money owed to a business by customers for credit sales, including trade receivables and notes receivable. Key concepts include the allowance for doubtful accounts and bad debt expense, which help estimate uncollectible accounts. Proper management of A/R is crucial for maintaining cash flow, profitability, and minimizing bad debt risks.

Uploaded by

AesunAccountingstudent
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Accounts Receivable Notes

Definition

Accounts Receivable (A/R) refers to the money owed to a business by customers who
purchased goods or services on credit. It represents a company's right to receive cash in the
future.

Key Concepts

Trade Receivables– Amounts owed from customers for credit sales.

Notes Receivable – Formal promissory notes stating payment obligations.

Allowance for Doubtful Accounts (AFDA) – An estimate of receivables expected to be


uncollectible.

Bad Debt Expense – The estimated cost of uncollectible accounts in a given period.

Aging of Receivables – A method used to classify A/R based on the time outstanding, helping
estimate bad debts.

Formula for Bad Debt Expense

Bad Debt Expense = {Credit Sales}x {Estimated Bad Debt Percentage}

Journal Entries

1. Recording a Sale on Credit

Dr Accounts Receivable ₱10,000

Cr Sales Revenue ₱10,000

2. Recording a Payment Received

Dr Cash ₱10,000

Cr Accounts Receivable ₱10,000

3. Recording Bad Debt Expense (Allowance Method)**

`Dr Bad Debt Expense ₱500

Cr Allowance for Doubtful Accounts ₱500


4. Writing Off an Uncollectible Account**

```

Dr Allowance for Doubtful Accounts ₱500

Cr Accounts Receivable ₱500

```

5. Recovery of a Previously Written-Off Account

```

Dr Accounts Receivable ₱500

Cr Allowance for Doubtful Accounts ₱500

Dr Cash ₱500

Cr Accounts Receivable ₱500

```

Importance of Managing A/R

- Ensures stable cash flow.

- Maintains profitability.

- Reduces risks of bad debts.

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