Accounts Receivable—Amounts due from customers for credit sales. They occur when a customer uses credit cards issued by third parties and when a company gives credit directly to customers.

A.  Recognizing Accounts Receivable:

1.      Sales on credit—Increase (debit) Accounts Receivable for the full amount of the sale and increase (credit) Sales.

2.   Credit card sales (Examples: Visa, MasterCard, American Express).

B.   Installment Sales and Receivables
Amounts owed by customers from credit sales where payment is required in periodic amounts over an extended time period.

1.   Customer is usually charged interest.

2.   Should be classified as current assets even if credit period exceeds year if the company regularly offers customers such terms.

C.   Valuing Accounts Receivable
Accounts of customers who do not pay are uncollectible accounts, commonly called bad debts. Two methods are used to account for uncollectible accounts:

1.   Direct Write-off Method
Records the loss from an uncollectible account receivable when it is determined to be uncollectible.

2.   Allowance Method
Matches the estimated loss from uncollectibles against the sales they helped produce.