What is the theoretical justification for the allowance method of accounting for bad debt?
First, since revenue is considered to be recognized at the point
of sale on the assumption that the resulting receivables are valid
liquid assets merely awaiting collection, periodic income will be
overstated to the extent of any receivables that eventually become
uncollectible. The proper matching of revenue and expense requires
that gross sales in the income statement be partially offset by a
charge to bad debt expense that is based on an estimate of the
receivables arising from gross sales that will not be converted
into cash.
Second, accounts receivable on the balance sheet should be stated
at their estimated net realizable value. The allowance method
accomplishes this by deducting from gross receivables the allowance
for doubtful accounts. The latter is derived from the charges for
bad debt expense on the income statement.
What is the theoretical justification for the allowance method of accounting for bad debt?
When using the allowance method of accounting for uncollectible accounts, the recovery of a bad debt would be recorded as a debit to Cash and a credit to Bad Debts Expense. Group of answer choices True False
pick a method of accounting for bad debt. What do you like about it and why? give an example of a company where it makes sense to use that method? Why does it make sense? Also give an example of a company where it makes sense to use Allowance method for bad debt? Why does it make sense?
Using the allowance method, what is the correct amount of a company's bad debt expense for the year, given the above information? Consider the following information regarding the company's history: • Accounts Receivables total $950,000 • Estimates show that 4% of its receivables will be uncollectible • No balance in the Allowance account Using the allowance method, what is the correct amount of a company's bad debt expense for the year, given the above information? $38,000 $36,480 $42,750 $39,520
If a company uses the allowance method of accounting for bad debts which one of the following is true? Violates the matching principle it will record bad debt only when an account is determined to be uncollectible If a company uses the allowance method of accounting for bad debts, which one of the following statements is true? O A. It violates the matching principle O B. It will record bad debts only when an account is determined to be uncollectible...
1) Accounting for uncollectible accounts using the allowance method Millennium Associates records bad debt using the allowance, income statement method. They recorded $299,420 in accounts receivable for the year, and $773,270 in credit sales. The uncollectible percentage is 3.2%. On February 5, Millennium Associates identifies one uncollectible account from Molar Corp in the amount of $1,330. On April 15, Molar Corp unexpectedly pays its account in full. Record journal entries for the following. A. Year-end adjusting entry for 2017 bad...
Describe fully both the direct write-off method and the allowance method of recognizing bad debt expense, discuss the reasons why one of the methods is preferable to the other and the reasons why the other method is not usually in accordance with generally accepted accounting principles.
Balance Sheet (Partial): Allowance Method Accounts receivable $97,500 Less allowance for bad debt ? and balance ? Direct Write-Off Method 97,500 Less: Allowance for Bad Debts 0 balance $97,500 find the ?'s
We learned in Bad Debt 1 HW that accrual-basis taxpayers cannot use the allowance method to estimate bad debt. The IRS allows a special method that does not officially use the allowance method, but the effect is the same as if they used the allowance method. Hint: review the expanded solutions for chapter 3. 1. What is the name of this method? 2. What kind of businesses may or may not use this method? 3. In what way is this...
We learned in Bad Debt 1 HW that accrual-basis taxpayers cannot use the allowance method to estimate bad debt. The IRS allows a special method that does not officially use the allowance method, but the effect is the same as if they used the allowance method. Hint: review the expanded solutions for chapter 3. 1. What is the name of this method? 2. What kind of businesses may or may not use this method? 3. In what way is this...
We learned in Bad Debt 1 HW that accrual-basis taxpayers cannot use the allowance method to estimate bad debt. The IRS allows a special method that does not officially use the allowance method, but the effect is the same as if they used the allowance method. Hint: review the expanded solutions for chapter 3. 1. What is the name of this method? 2. What kind of businesses may or may not use this method? 3. In what way is this...