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BA 211 Chapter 8-4 "Allowance Method--Aging-of-Receivables" - YouTube
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>> Haitham: Okay.
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The last method of calculation
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for estimating the
uncollectible,
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the expected uncollectible
amounts to be able
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to record an adjusting journal
entry at the end of the year
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for that expense, it's
called the Aging method,
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Aging of Receivable method, and
the difference between this one
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and the aging of, I'm
sorry, the percentage
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of receivable is we're
going to be more specific
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with this method of calculation,
and what I mean is we're going
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to look back at the amounts
owed by customers to us,
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and then we're going to break
it down into, based on the age
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of that amount owed
by the customer.
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So, let's say we have
$5,000 owed by a group
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of customers between
0 to 30 days.
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And then, there's another amount
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that is also owed
by the customers.
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It's also a part of the
balance of Accounts Receivable,
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and let's say that was
$3,000 owed by the customers
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between 31 days and 60 days.
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And then, another
group of customers
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for a different amount, $2,000
let's say total for that group,
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and it's been owed by
those customers since,
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let's say, 61 days and 90 days.
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And then, another
group 90 days and over.
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And well, we can make as
many groups as we want,
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depends on the company, how
specific they want to be,
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or how much as accurate as
possible they want to be.
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Okay. So, you can
see now in the table,
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it shows us the amounts
owed by the customers.
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It's, for example, between 1 day
to 30 days, we have, let's say,
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$800 owed by Broxson, and
then there's another company
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that owes us $2,100
between 1 to 30 days also;
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and then there's $1,345, so
the total of these amounts owed
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by customers that is between
1 day and 30 days it's $4,245.
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And then, a different group, if
you look at the second column,
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31 to 60 days, there's $850
owed, and then 61 to 90 days,
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there's $1,200; and then over
90 days there's $100 owed
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by customers.
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Now, the idea here
is the longer, oh,
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the older that amount
owed by the customers,
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the higher percentage
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of expected uncollectible amount
will be given to that amount
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because it's been
there for a while.
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So, that's a difference between
this and the previous method.
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It's not just one percentage.
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Every group has a
different percentage,
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and then we're just going
to multiply this percentage
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by the amounts and then add them
together to find out the total
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of the ending balance for AFDA,
which is the total balance
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of expected uncollectible amount
at the end of the year, okay.
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So, we, for example, we
just give 1% for the group
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of amounts owed between
1 day and 30 days; so,
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we multiply the 1%
by the $4,245.
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And then, the column 2, we
give a higher percentage, 2%,
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or maybe 3, or whatever.
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So, 2% multiplied
by 830, we got $17.
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And then, group 3, we gave
a higher, which is 3%,
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multiplied by 1200, you get $36.
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And then, over 90 days,
we're almost, almost,
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we started to give up, waiting,
we started to feel like, okay,
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it's most probably
not going to be paid,
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so we give a very
high percentage.
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We gave 90% percentage of
expected uncollectible amounts.
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So, 90% multiplied by
$100; that will be $90
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that we think is not
going to be collected.
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So, add all these
totals, 90 plus 36,
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plus 70 plus 42, we get $185.
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$185, it's the ending
balance of AFDA.
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So, let's make a T-account
here just like we did
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in the previous video
for the AFDA.
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So, again, the amount
we came up with, $185,
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that has to be the
ending balance at the end.
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And remember, that's not
the amount we should have
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in the journal entry because
we're using the percentage
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of receivables.
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It's not percentage of
sales, so be careful.
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It's not going to be
directly to the journal.
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We have to find out what
was the beginning balance,
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or the unadjusted
balance for AFDA,
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before we came up with the 185.
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So, let's assume that it
was, for example, $80,
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and then if there was no
write off during the period
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which is going to be a debit
balance here, then we just have
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to do 185 minus 80,
which is going to be 105.
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But let's assume that
there was an amount
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that has been written off during
the period for $25, for example,
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so we have to do our math and
solve for x just like we did
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in the previous video, okay.
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So, that technique is the
same as the previous method.
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It's just when we came up with
the 185, it took us longer time
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to find it because we used
more percentages, okay.
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So, again, we're going to
do 185 minus 80 plus the 25,
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and if we do a quick math,
that will be $130 here.
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So, that will be $130 for x. And
then, the journal entry, again,
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as usual, it's always
going to be debit,
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and using the Allowance Method,
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it's debit to the Bad
Debt Expense for the $130,
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and then credit to
AFDA, or Yearbook,
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I think in the book it's
called Allowance for Bad Debts.
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So, $130. And in
the next videos,
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we'll talk about the rest of
the topics from Chapter 8.
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