ARE - Accounts Receivable Entries
ARE (Accounts Receivable Entries)
ARE helps remember the three main types of accounts receivable entries: A = Accrue (record the sale), R = Receive (collect cash), E = Estimate (bad debt expense).
ARE helps remember the three main types of accounts receivable entries: A = Accrue (record the sale), R = Receive (collect cash), E = Estimate (bad debt expense).
Breakdown
Accrue
Record sale on account: Debit A/R, Credit Sales Revenue
Receive
Collect cash: Debit Cash, Credit A/R
Estimate
Bad debt: Debit Bad Debt Expense, Credit Allowance
Example
Jan 1: Sell $1,000 on account (Accrue). Jan 15: Receive $900 cash (Receive). Jan 31: Estimate $50 uncollectible (Estimate).
When to Use This
- ✓Recording credit sales
- ✓Processing customer payments
- ✓Making period-end adjustments for bad debts
- ✓Understanding the receivables cycle
FAQs
Common questions about this mnemonic
Writing off a specific account is different from estimating bad debt. Write-off: Debit Allowance for Doubtful Accounts, Credit A/R. This uses the previously estimated allowance.
Bad debt expense is typically recorded as an adjusting entry at period end, based on historical data or aging analysis. It's an estimate, not a known amount.
Estimating (E in ARE) records the expected bad debt expense before knowing which accounts will default — it debits Bad Debt Expense and credits Allowance. Writing off removes a specific customer's balance when it's confirmed uncollectible — it debits Allowance and credits A/R. The estimate hits the income statement; the write-off only rearranges the balance sheet.
Primarily credit sales. For cash sales, steps A and R happen simultaneously (Cash increases, Revenue increases) and there's no receivable to worry about. Step E only applies when you have outstanding receivables that might not be collected. ARE is specifically useful for the credit sales cycle.