Introduction to Accounting for Accounts Receivable

Recording Accounts Receivable

  • Debit: An increase in accounts receivable is recorded with a debit entry, reflecting the amount owed by the customer.
  • Credit: A corresponding increase in revenue or sales is recorded with a credit entry, recognizing the income earned from the sale.

Monitoring and Tracking

Recording Bad Debts

  • Allowance for Doubtful Accounts: Companies create a contra-asset account called the allowance for doubtful accounts to reflect the estimated portion of accounts receivable that may not be collected.
  • Bad Debts Expense: Periodically, companies record an adjusting entry to recognize bad debts expense, reflecting the portion of accounts receivable expected to be uncollectible based on the allowance for doubtful accounts.

Reporting Accounts Receivable

Conclusion

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