Accounting for Debtors (Accounts Receivable)

1. Accounting for Debtors (Accounts Receivable) Credit control Estimating bad debts Provision for doubtful debts Writing off Bad debts

2. What are receivables? • Receivables (Debtors) • Amounts due to firm from other businesses or persons • Accounts receivables (amounts owing to the business for goods and /or supplied by the firm on credit). Also called trade debtors. • Other receivables

3. Credit control • Procedures and measures taken the business to: • Minimise the risk of losses due to bad debts • To recover outstanding debts

4. Control over accounts receivable • Procedure on Credit approval • Investigate customer credit worthiness • establish credit policy (minimum requirement before credit is granted, number of days for debtors to pay, discount to be given, amount of interest on overdue accounts) • Adequate record • Use of control accounts and subsidiary ledgers

5. Control over accounts receivable • Billing • Invoice as the document that certifies a credit sale has taken place • Credit note: sales return or allowance given • Statements of accounts should be send at regular intervals • Monitoring of accounts receivable to ensure that debt are paid on time • Aging of accounts receivable • Separation of duties

6. Baker’s Trading Aging of Accounts Receivable As at 30 September 2005

7. Allowance for Doubtful debts • Application of prudence and matching concepts • Journal entry: • Dr Bad Debts Expense XXX • Cr Allowance for Doubtful Debts XXX

8. Writing off Bad debts • Situations (1) Direct write off method/no allowance for doubtful debts • Adequate allowance for Doubtful debts • Inadequate allowance for Doubtful debts

9. Writing off bad debts (direct