[vodrldnr]

so my understanding about this is..

basically allowance for uncollectible account is an contra asset account related to accept receivable.

when there is reasonable estimation about the uncollectability of A/R, we record bad debt expense and allowance for uncollectible account on F/S in an accordance with accrual basis accounting (conservatism : recognize anticipated loss and expense when they incurred)

when the uncollectability is confirmed, we “write off”, we debit Allowance and credit A/R to present actual decree of account receivable.

my question here is since Allowance is Contra asset account related to A/R, doesn’t it DECREASE A/R even before we actually write off the allowance ????

with this understanding (not sure if I am right about the concept)

I tried to solve this problem and come to have some question

<Problem >
Marr Corp. reported rental revenue of $2,210,000 in its cash basis federal income tax return for the year ended November 30, 2006. Additional information is as follows: Rents receivable – November 30, 2006 $1,060,000 Rents receivable – November 30, 2005 $800,000 Uncollectible rents written off during the fiscal year $30,000

under the accrual basis, Marr should report rental revenue of ?

answer : 250,000

my approach to the problem :

using T account method

<Rent receivable >
————————
BB: 800,000

+(??? WHAT WE ARE SOLVING FOR)

-(During the year : 2,210,000)
-(Write off 30,000
———————————
EB: 1,060,000

I got the answer right

but..

my question is still

when the uncollectible rents written off, the J/E will be like

Allowance xxx | A/R xxxx

but before this J/E

we probably had J/E like this

Bad debt expense xxx | Allowance xxxx

since the allowance is contra asset account related to A/R, isn’t A/R decreased even before the write off ????

why should I decrease A/R ( I am referring to Rent Receivable) when I actually write of A/R?? I know this is how the J/E represents but in the concept of contra asset, isn’t it telling that A/R is already decreased due to the contra asset ????

maybe…simple way to ask my question is how the allowance for uncollectible will be reflected on B/S before it is written off.

[vodrldnr]

okay ,, I am not sure if I am right but seems like I found answer by myself

SFAC5 state that short term receivable must be pressed as NRV on F/S

by using allowance method, we present A/R at its NRV

the note here is that the entry when using allowance method for the current year F/S, it affect I/S and B/S but it does't affect ACTUAL A/R account on B/S. Instead, it help to A/R to be pressed at its NRV…

am I right ??…

[Missy]

No A/R is not affected at all by the allowance entry. A contra account is an entirely different account on the balance sheet directly below the account it contras. Only four types of transactions go directly to receivables: invoice, credit memos,payment receipts, and write offs.

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[vodrldnr]

mlc 11692> thank you!. now the concepts become more clear.

I think I was confused about how the contra account works.

[Author]

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