Accounts Receivable


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Hi,

We have outstanding AR (but not AR trade), we managed to sell items from the debtor:
entry was: debit Cash credit AR

This particular AR has provision for bad debts.

Now, there's a proposal to the original entry:
debit cash
credit Allowance for Doubful Accounts.

If we adopt the proposal entry, are we still GAAP-compliant?
Is the proposed entry correct?

Thanks
 
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Steve-LevelUp

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The best way to treat this would be to apply the cash to the debt that it pays. If the remaining unpaid portion of the debt is still outstanding and will not be collected, then you can write this off against the allowance, if you have an allowance set up. So, then entry would be as follows.

Dr. Cash
Cr. AR

Dr. Allowance.
Cr. AR

The two credits to AR should remove all items related to this debt that was sold.

However, if the allowance was not calculated based on this sale/discount rate, then it should probably not be recorded against the allowance but rather a different account. It could either be a bad debt or AR discount on sale. I do not believe there are GAAP implications (but I could be wrong)
 

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