Definition of Accounts Receivable Write-off

This time we will discuss the method of recording accounts receivable along with examples in a complete and clear manner . Do you have accounts receivable? Or maybe you are confused about making accounts receivable? What are accounts receivable?


Table of contents :

Definition of Accounts Receivable Write-off

Accounts receivable methods:

There are 2 types of accounts receivable:

Accounts Receivable Valuation

Recognition and recording of receivable losses

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Definition of Accounts Receivable Write-off

Receivables ( bad debt ) are losses to be borne by the company for their receivables are not collectible. Receivables cannot be collected apart from because the borrower has conditions that make it difficult for him to pay, it can also be caused by not making a clear and legally protected contract or agreement.


When a company wants to write off accounts receivable, it needs to be done based on the accounts receivable write-off method.


According to Zaki Baridwan, the method of writing off accounts receivable is “trade receivables that are impossible to collect,


such as the debtor going bankrupt, died, bankruptcy and others must be eliminated so that it will become a cost for the company.


According to Mas’ud Machfoedz, 1999


the cycle of recording accounts receivable


Accounts receivable is a claim against another party so that the other party pays an amount of money or services within a maximum period of one year or one accounting period, if the period is longer than one year.


Or in other terms Accounts receivable can be said to be invoices to individuals or companies where they have purchased goods or utilized our company’s services on credit.


Or it could be said that receivables arose because of a sale on credit, and the receivables could be short term (less than one year or long term more than one year) depending on the agreement between the two parties.


the method of recording accounts receivable


Accounts receivable methods:


Method The direct method of writing off accounts receivable is also called the direct method. In the direct method, the write-off of new accounts receivable will be recorded in the books when the receivables become completely uncollectible. This method is usually used by small companies or companies that cannot predict the write-off of accounts receivable or bad debts with accuracy.

These companies usually do not calculate the loss of bad debts at the end of each accounting or financial record period. However, these receivable losses are recorded only when it is absolutely certain that they cannot be collected.

Reserve Method The

method for write-off of reserves is also called the allowance method. In the reserve method, the company needs to do an assessment of bad debts at the end of each accounting period. This method is usually used by large-scale companies that are accustomed to recording estimates or estimates of uncollectible receivables.

The accounting records used to record transactions involving receivables are:


Sales Journal, this record is used to record the reduced receivables from credit sales transactions.

Sales Returns Journal, this accounting record is used to record reduced receivables from sales return transactions.

Cash Receipts Journal, this accounting record is used to record reduced receivables from cash receipts from debtors.

Accounts Receivable Card, this accounting record is used to record the movements and balances of accounts receivable from debtors.

Also Read:   Understanding Financial Accounting

The duties of the accounting function in relation to recording receivables are:


Maintain accounts receivable records for each debtor, which can be a receivable card which is a accounts receivable subsidiary book, which is used to detail accounts receivable in the general ledger, or in the form of an open invoice file, which functions as a accounts receivable subsidiary book.

Generate an account receivable statement periodically by sending it to every debtor.

Maintain credit history records for each debtor to make it easier to provide data in order to decide whether to give credit to customers and to follow the billing data of each debtor.

There are 2 types of accounts receivable:

Accounts receivable These

are receivables arising from the sale of the company’s main business.

  1. Other receivables These

are claims arising from other than trade receivables, including interest receivables, dividend receivables, advances from branch / subsidiary companies.

Accounts Receivable Valuation

According to Budi Prijanto, SE., MMSI, the assessment of accounts receivable that will be presented in the financial statements includes:


Initial receivables recognition

Estimated amount of receivable losses

Receivables that are not fully controlled by the company or receivables used to raise funds.

We discuss one by one


Initial receivables acknowledgment; There are three ways to recognize receivables, namely: a. The gross method recognizes the amount receivable at sales, regardless of any deductions to be given. If the debtor turns out to be taking a discount, it will be recognized as a deduction from the sales amount.

  1. Clean method ; recognizes the amount due after deduction from sales deductions. If it turns out that the debtor does not take advantage of the discount, it will result in an overpayment of the receivables. These advantages are recognized as other income / outside operations.
  2. Backup method ; recognizes the amount receivable at the amount before deducting any deductions, but sales are recognized at the net of deduction. The difference is recorded as “allowance for sales discounts”.



  1. On April 5, 2010 PT. Liesti sells merchandise on terms (terms) 2/10-n / 30 at a price of IDR 10 million.
  2. On April 14, 2010, receivables were paid from the sale of merchandise on April 5, 2010.


PT.LIRSTI general journal


Estimated Amount of Losses on Receivables Receivables presented in the Financial Statements are net receivables that are estimated to be realizable or collectible (Net Realizable Value). Therefore, there must be a prediction of the amount of uncollectible accounts receivable. And the uncollectible receivables are recognized as a loss on accounts receivable.

To determine a reasonable amount of receivables, an allowance for bad debt is necessary.

According to Budi Prijanto, SE., MMSI, there are 3 ways to estimate the amount of reserves for write-offs, namely:


→ Using the aging schedule analysis of

  1. Liesti as of December 31, 2011, has data on receivables as follows:
  2. Lesti table


→ Estimation of the final balance of accounts receivable on the balance sheet

Example : From PT. Liesti above states that debtor A’s receivable is IDR 2 million, estimated at 5% uncollectible, then the allowance for losses on accounts is 5% x IDR 2 million = IDR 100,000.


→ An estimate of the number of credit sales during a period.

Example : PT. Liesti sells goods for one year amounting to IDR 100,000,000, consisting of cash sales of IDR 40,000,000 and the rest is credit. For example, the allowance for accounts receivable is set at 2%, the allowance for losses on accounts is = 2% x (Rp. 100 million – 40 million) = Rp. 1,200,000


Recognition and recording of receivable losses

  1. Direct Write Off, where receivables losses are recognized and recorded when the debtor is no longer possible to pay his debts.


For example, Debtor A is unable to pay his debt of Rp. 2 million, then the journal is:

Loss on Accounts Receivable Rp. 2 million

Receivables from Debtor A Rp. 2 million


If Debtor A declares to pay back his debt, then:

→ If the statement is submitted in the same year that the receivables were written off, a cancellation journal will be made (reversed). Just flip the journal above.

→ If the statement is submitted in the following year, the accounts receivable are written off, then the journal

Accounts Receivable from Debtor A is IDR 2 million

Profit on Accounts Receivable is IDR 2 million


  1. The Allowance for Uncollectible Method, determines the loss due at the date of the financial statements by estimating a certain amount that cannot be collected.


  1. Suppose Debtor A stoke receivable losses of Rp 2 million the journal

The journal is:

→ At the time it determines the loss reserve accounts:

Losses Due from Rp 2 million

reserve accounts receivable losses of Rp 2 million

→ If bad debts arising

Reserves Losses Due from Rp 2 million

Receivables Rp 2 million

→ If debtor’s receivables have been written-off to repay

Debtor A’s Receivables Rp. 2 million.

Allowance for losses on receivables of Rp. 2 million


For companies that like to speculate, receivables that are not due or have not been paid by the service recipient or the buyer of the company’s products, the company usually does the following things


Guarantee the receivables ( assignment )

Selling receivables ( factoring )

Mortgage receivables ( pledging )

We discuss one by one the explanation above.


Guarantee Accounts Receivable (Assignment) We

need to understand the terms in this case. If you don’t know the general meaning of language, you can see it in the accounting dictionary.

For companies that underwrite accounts receivable it is called an Assignment, while a receivable guarantor is called an assignor, for example a bank.

In this case the company will guarantee the receivables to the bank that is the guarantor and the company (assignment) will pay in installments to the assignor if the receivables are collected, including the principal of the loan, the cost of the loan and the cost of interest. Collateralized receivables will reduce the amount of current assets (working capital ) in the Balance Sheet. Collateralized receivables must be stated clearly to show the company’s limited control over these receivables.

Example :

On April 5, 2011 PT. LIES guarantees a receivable amounting to IDR 5,000,000 by obtaining a “EMAK” bank loan of IDR 4,000,000 at 10% interest per year from the current year-end balance of the current debt, expense of IDR 300,000.

Journal :

April 5 Cash IDR 3,700,000 *

Loan costs IDR 300,000

Debt for collateral for receivables IDR 4,000,000

(4,000,000 – 300,000)

(journal when receiving funds from the bank for collateralizing receivables) Collateralized receivables

IDR 5,000,000

Accounts receivable IDR 5,000 .000

(the journal recognizes that the receivables are collateralized by reducing the receivables on the balance sheet)

On May 5, 2011, the receivables were paid to the company amounting to Rp.1,000,000 and the company paid it to the bank plus interest.

The journal:

May 5 Cash Rp 1,000,000

Receivables pledged Rp 1,000,000

(a journal at the time of receiving the payment receivable from the buyer)

May 5th on guarantee receivables Debt Rp 1,000,000

Interest Expense Rp 33333.33

Cash Rp 1,033,333.33

(journal when the company pays the collected funds to the bank accompanied by the agreed bank interest).

Interest expense = 4,000,000 x (10% / 12) = IDR 33,333.33

Note that interest is based on the final outstanding balance pledged to the bank.

The presentation in the balance sheet is:

Current assets:

Receivables Rp . Xxxx Collateralized

receivables Rp. 5,000,000

Receivables on collateral Rp. 4,000,000

Rp. 1,000,000 +


If the collateral debt is paid off before the debtor has paid the debt, the collateralized receivable account is canceled.

Receivables Rp. Xxxx.

Receivables as collateralized Rp. Xxxx

Sales of Receivables (Factoring)

If the company sells receivables to get funds, the right to collect is transferred to the creditors as receivables from the company.

In this case the receivables recognized are net receivables that have been deducted by deductions and allowance for returns for damaged or returned goods because they are not in accordance with the order and allowance for accounts receivable write-off (uncollectible accounts). In this case the buyer of the company’s receivables will pay only a portion. And the accounts receivable in the balance sheet are written off.

Example :

On April 5, 2011 PT. LIES sells receivables of IDR 5,000,000 to “EMAK” bank, and EMAK bank pays IDR 4,000,000 5% discount, while IDR 1,000,000 (5 million-4 million) is determined as a reserve for possible returns and receivables write-off).

The journal entry :

April 5, 2011 Cash (4 million – 200,000) IDR 3,800,000

Cost of Receivables Sales (4 million x 5%) IDR 200,000

Receivable from EMAK bank IDR 1,000,000

Receivable IDR 5,000,000

(journal on receipt of funds from Emak Bank accompanied by costs incurred).

If there is a return of goods by the debtor of Rp. 200,000 and the write-off is due to non-collection of Rp. 100,000, the journal is:

Sales Returns of Rp. 200,000

Allowance for losses on receivables IDR 100,000

Receivables from EMAK bank IDR 300,000

If all receivables billed by EMAK bank have been paid off, the rest is the company right.

(IDR 5,000,000 – (200,000 + 100,000 + 4,000,000) = IDR 700,000 The

journal is:

Accounts receivable / cash IDR 700,000

Accounts receivable from EMAK bank IDR 700,000


for receivables (pledging), receivables are still listed as current assets, only the problem of the mortgage is recorded. In principle, the same as trade receivables (ordinary debt, bank debt, etc.).

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