Accounts Receivable and

Impairments
Review of Accounting for
Accounts Receivable

Typically recognize sales revenue at sale

Accounts Receivable 840
Sales Revenue 840

What about estimated uncollectibles?
Same issue with other assets that may be worth
less than carrying value (inventory, PP&E, etc.)
Allowance method
Generally required for financial reporting

Record estimated bad debt expense and
accounts receivable contra account at sale

Bad Debt Exp. (or Sales contra) 8.4
Allow. For DA (AR contra) 8.4

Net income effect at time of sale
No net income effect at time of write-off
Allowance for Doubtful Accounts 1.2
Accounts Receivable 1.2

Reverse out entry if later collected
Accounts Receivable 1.2
Allowance for DA 1.2
Match revenue & expenses in period of sale
Records net accounts receivable at expected
cash collection
Discretion in estimating bad debt expense

Adjust estimate at period-end if necessary
How to estimate bad debts?
Percentage of sales
Aging of accounts receivables
Often A. and B. are used in combination
Allowance for DA 0.8
Bad Debt Expense 0.8
To reduce allowance based on period-end A/R
Other applications
Sales return and cash discounts
Inventory obsolescence
From Cokes 10-K
ACCOUNTS RECEIVABLE AND
BAD DEBTS T-ACCOUNTS
(Gross) Accounts Receivable

Beg. Bal.

Credit Sales Collections

Write-offs

Ending Bal.
Allowance for Doubtful Accounts

Beg. Bal.

Write-offs Bad Debt Exp.



Ending Bal.
ACCOUNTS RECEIVABLE AND
BAD DEBTS T-ACCOUNTS
(Gross) Accounts Receivable
Beg. Bal.
$1,941(B/S)
Credit Sales Collections
$19,564 (I/S) $19,322 (Plug)

Write-offs
$31(10-K)
Ending Bal.
$2,152 (B/S)
Allowance for Doubtful Accounts
Beg. Bal.
$59 (B/S)
Write-offs Bad Debt Exp.
$31 (10-K) $27 (10-K)


Ending Bal.
$55 (10-K)
Other Allowances and Reserves
Impairment allowances
If PP&E is not expected to return its net BV

Impairment Loss 100
PP&E (or contra) 100

Depreciate based on remaining life and new
book value
Take the B/S and I/S hit when the value drops
Player trading profits were 12.9 million pounds due largely
to the transfer of England captain David Beckham to Real Madrid,
but were down from last year's profit of 17.4 million pounds as the
club took a write down on the value of Argentine midfielder Juan
Sebastian Veron before his subsequent sale to Chelsea.
"These are a cracking set of results, but there are
a lot of one-offs this year and they may struggle to
match them next year on a like-for-like basis," said
analyst Andrew Lee at Dresdner Kleinwort Wasserstein
LONDON, Sept 30 (Reuters) - Manchester United sought to play
down persistent takeover speculation surrounding the premier
league champions on Tuesday as success on and off the pitch boosted
annual profits by 22 percent.
Warrantee Allowance
Set up allowance for expected liability
when you sell the product
Warrantee Expense 40
Warrantee Liability 40
When you pay to fix it or replace it
Warrantee Liability 40
Cash (or Inventory) 40
Restructuring Reserves
Set up a reserve for unavoidable costs and
impairments when you begin a restructuring

Loss on Restructuring 100
Restructuring Liability 40
PP&E (or contra) 60
Reverse out the liability when you pay cash

Restructuring Liability 40
Cash 40
Depreciate remaining PP&E balance over
remaining life