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CA STUDY NOTES

Accounts Receivable (A/R) entries during an interview:

1. Sale on Credit (Invoice Creation)
When a company sells goods or services on credit, it creates an account receivable, reflecting the amount the customer owes.
This transaction increases the company’s assets (A/R) and recognizes revenue.

Journal Entry:
Dr: Accounts Receivable (A/R)
Increases the A/R account, representing the money owed by customers.
Cr: Sales Revenue (or Service Revenue)
Recognizes the revenue earned from the sale.

Ex: If a company sells $5,000 worth of goods on Cr, the journal entry would be:
Dr: Accounts Receivable $5,000
Cr: Sales Revenue $5,000

2. Collection of Receivables
When the customer pays the amount owed, the cash account increases and the A/R account decreases.
This reflects the receipt of cash and the settlement of the receivable.

Journal Entry:
Dr: Cash or Bank
Increases the cash or bank account with the amount received.
Cr: Accounts Receivable (A/R)
It decreases the A/R account as the receivable has been settled.

Ex: If the customer pays $5,000 in cash, the entry would be:
Dr: Cash $5,000
Cr: Accounts Receivable $5,000

3. Bad Debt Expense (Writing Off Uncollectible Receivables)
Sometimes, customers may be unable to pay their dues, and the company must recognize this as a loss.
Writing off a receivable involves removing it from the A/R account and recording it as an expense.

Journal Entry:
Dr: Bad Debt Expense
Records the uncollectible amount as an expense, impacting the income statement.
Cr: Accounts Receivable (A/R)
Removes the uncollectible amount from the A/R account.

Ex: If $500 of receivables is deemed uncollectible, the entry would be:
Dr: Bad Debt Expense $500
Cr: Accounts Receivable $500

4. Adjusting Entry: Allowance for Doubtful Accounts
Companies may estimate that a portion of their receivables will not be collected and make an adjusting entry to reflect this.
This method is more accurate as it matches potential losses with the revenues generated in the same period.

Journal Entry:
Dr: Bad Debt Expense
Recognizes the estimated uncollectible receivables as an expense.
Cr: Allowance for Doubtful Accounts
Creates a contra-asset account to offset the A/R balance.

Ex: If a company estimates that $1,000 of its $50,000 in receivables may not be collected, the entry would be:
Dr: Bad Debt Expense $1,000
Cr: Allowance for Doubtful Accounts $1,000

5. Recovery of Previously Written-off Accounts
Occasionally, a customer might pay after their account has been written off. In such cases, the original write-off is reversed, and the payment is recorded.

Journal Entries:
Reverse the Write-Off:
Dr: Accounts Receivable
Cr: Bad Debt Expense (or Allowance for Doubtful Accounts)
Record the Payment:
Dr: Cash or Bank
Cr: Accounts Receivable

Ex: If a previously written-off $200 receivable is recovered, the entries would be:
Reverse Write-Off:
Dr: Accounts Receivable $200
Cr: Bad Debt Expense $200
Record Payment:
Dr: Cash $200
Cr: Accounts Receivable $200

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