Accounting Concepts
Discuss the differences between the allowance method and the direct write-off method for recording uncollectible accounts. Which of the two is acceptable under financial accounting rules
Homework Answers
Differences between the allowance method and the direct write off method:
1.Bad debts needed to be recognized when the Accounts receivable is uncollectible.We dont record the estimate about the doubtful accounts receivable from the previous year experience in direct write off method.We record them only when we confirm that they are not going to get collected.
Allowance method will record the estimate of bad debt which may arise from the credit sales made during the year .This is purely judgemental, based on the past experiences the organization have.
2.The credit sale may occur in one year and the bad debts may arise in next year in case of Direct write off method.This will make the profit high in one year and low in the other year.
where as , In case of Allowance method Both the sale and allowance will be recorded in the same period.
3.Direct write of method is not as per the Matching Principle because it does not record the revenues and expenses in the same period.
Whereas the allowance method perfectly matches the accrual concept of accounting and the Matching principle because the allowance is made in the period in which sales are made.
4.Direct write off method is fact based ,where as allowance method is an estimate based.
As per Generally Accepted accounting policies (GAAP),the Allowance method is acceptable under financial accounting as it is as per the Matching principle.
15. Two methods of accounting for uncollectible accounts are the: a. allowance method and the accrual...
15. Two methods of accounting for uncollectible accounts are the: a. allowance method and the accrual method. b. allowance method and the net realizable method. c. direct write-off method and the accrual method. d. direct write-off method and the allowance method.
Cite all sources. Please answer the following question(s): 1. Compare and contrast the direct w...
Cite all sources.
Please answer the following question(s):
1. Compare and contrast the direct write-off method and the
allowance method for bad debts.
2. Explain when the expense for uncollected accounting receivable
is recognized for each method. Why?
3. Why is the direct write-off method not considered to follow
generally accepted accounting principles (GAAP)?
4. Discuss the allowance method and the direct write-off method of
accounting for bad debts. When is the expense for uncollected
accounts receivable recognized under each...
Please help me to fill out this. DEMONSTRATION PROBLEM-Estimating Uncoectible Accounts Based on Aging of Receivables Bad Debt Expense Account Receivable When accountants estimate uncollectible account...
Please help me to fill out this.
DEMONSTRATION PROBLEM-Estimating Uncoectible Accounts Based on Aging of Receivables Bad Debt Expense Account Receivable When accountants estimate uncollectible accounts based on receivables, they determine what the balance of the allowance for doubtful accounts should be. Assume that an accountant determines that $2,000 of the current accounts receivable (aging receivables) will probably not be collected Also assume that the Allowance for Doubtful Accounts currently shows a $200 credit balance Why the Allowance for Doubtful...
12. Allowance for doubtful accounts. When a company has a policy of making sales for which...
12. Allowance for doubtful accounts. When a company has a policy of making sales for which credit is extended, it is reasonable to expect a portion of those sales to be uncollectible. As a result of this, a company must recognize bad debt expense. There are basically two methods of recognizing bad debt expense: (1) direct write-off method, and (2) allowance method. Instructions Describe fully both the direct write-off method and the allowance method of recognizing bad debt expense. Discuss...
Journalize entries to record P9-SA At December 31, 2017, the trial balance of Darby Company contained...
Journalize entries to record P9-SA At December 31, 2017, the trial balance of Darby Company contained the following amounts before adjustment. transactions related to bad debts. Debit Credit (LO 2) Accounts Receivable Allowance for Doubtful Accounts Sales Revenue $385,000 $ 1,000 970,000 Instructions (a) Based on the information given, which method of accounting for bad debts is Darby Com- pany using-the direct write-off method or the allowance method? How can you tell? (b) Prepare the adjusting entry at December 31,...
Delores Cooper operates Cooper Garden Designs. Most of her customers pay cash so she uses the...
Delores Cooper operates Cooper Garden Designs. Most of her
customers pay cash so she uses the direct write-off method to
account for uncollectible accounts receivable. On May 3, 2020, she
determined that the $2,700 account for Wilma Benz was
uncollectible. During 2020, she had total credit sales of $275,000.
The December 31, 2020, balance in accounts receivable was
$44,000.
Required:
Prepare journal entry to record the May 3 write-off using the
direct write-off method.
1. Record to write-off an uncollectible...
Bad Debt Practice Exercises 26. The percentage of receivables method for estimating uncollectible accounts focuses on...
Bad Debt Practice Exercises 26. The percentage of receivables method for estimating uncollectible accounts focuses on a net realizable value b. the relationship between accounts receivable and bad debts expense c. income statement relationships d. the relationship between sales and accounts receivable 27. Holman Company uses the percentage of credit sales method. Cash sales are $1,000,000 and credit sales are $4,000,000. Management estimates that 1% of sales will be bad. What adjusting entry will Homan Company make to record the...
Multiple Choice Question 113 Blue Spruce Corp. uses the percentage-of-receivables method for recording bad debt expense....
Multiple Choice Question 113 Blue Spruce Corp. uses the percentage-of-receivables method for recording bad debt expense. The Accounts Receivable balance is $400000 and credit sales are $1600000. Management estimates that 6 % of accounts receivable will be uncollectible. What adjusting entry will Blue Spruce Corp. make if the Allowance for Doubtful Accounts has a credit balance of $4000 before adjustment? Bad Debt Expense 16000 Accounts Receivable 16000 Bad Debt Expense 20000 Allowance for Doubtful Accounts 20000 Bad Debt Expense 8000...
34. After aging the accounts receivable, it is estimated that $790 will not be collected and...
34. After aging the accounts receivable, it is estimated that $790 will not be collected and the allowance s an exristing debit balance of $230. The adjusting entry under the aging approach would b for the amount of $790. b. $230. c. $560. d $1,020. 35. After aging the accounts receivable, it is estimated that $420 will not be collected and the allowance account has an existing debit balance of $100. If accounts receivable is $14 would be a. $145,000....
3)At December 31, 2010, the trial balance of Worcester Company contained the following amounts before adjustment...
3)At December 31, 2010, the trial balance of Worcester Company contained the following amounts before adjustment Debits $385,000 Credits Accounts receivable Allowance for doubtful accounts Sales $2,000 950,000 Based on the information given, which method of accounting for bad debts is Worcester Company using-the direct write-off method or the allowance method? Prepare the adjusting entry at December 31, 2010, for bad debts expense under each of the following independent assumptions (1) An aging schedule indicates that $11.750 of accounts receivable...
15. Two methods of accounting for uncollectible accounts are the: a. allowance method and the accrual method. b. allowance method and the net realizable method. c. direct write-off method and the accrual method. d. direct write-off method and the allowance method.
Cite all sources.
Please answer the following question(s):
1. Compare and contrast the direct write-off method and the
allowance method for bad debts.
2. Explain when the expense for uncollected accounting receivable
is recognized for each method. Why?
3. Why is the direct write-off method not considered to follow
generally accepted accounting principles (GAAP)?
4. Discuss the allowance method and the direct write-off method of
accounting for bad debts. When is the expense for uncollected
accounts receivable recognized under each...
Please help me to fill out this.
DEMONSTRATION PROBLEM-Estimating Uncoectible Accounts Based on Aging of Receivables Bad Debt Expense Account Receivable When accountants estimate uncollectible accounts based on receivables, they determine what the balance of the allowance for doubtful accounts should be. Assume that an accountant determines that $2,000 of the current accounts receivable (aging receivables) will probably not be collected Also assume that the Allowance for Doubtful Accounts currently shows a $200 credit balance Why the Allowance for Doubtful...
12. Allowance for doubtful accounts. When a company has a policy of making sales for which credit is extended, it is reasonable to expect a portion of those sales to be uncollectible. As a result of this, a company must recognize bad debt expense. There are basically two methods of recognizing bad debt expense: (1) direct write-off method, and (2) allowance method. Instructions Describe fully both the direct write-off method and the allowance method of recognizing bad debt expense. Discuss...
Journalize entries to record P9-SA At December 31, 2017, the trial balance of Darby Company contained the following amounts before adjustment. transactions related to bad debts. Debit Credit (LO 2) Accounts Receivable Allowance for Doubtful Accounts Sales Revenue $385,000 $ 1,000 970,000 Instructions (a) Based on the information given, which method of accounting for bad debts is Darby Com- pany using-the direct write-off method or the allowance method? How can you tell? (b) Prepare the adjusting entry at December 31,...
Delores Cooper operates Cooper Garden Designs. Most of her
customers pay cash so she uses the direct write-off method to
account for uncollectible accounts receivable. On May 3, 2020, she
determined that the $2,700 account for Wilma Benz was
uncollectible. During 2020, she had total credit sales of $275,000.
The December 31, 2020, balance in accounts receivable was
$44,000.
Required:
Prepare journal entry to record the May 3 write-off using the
direct write-off method.
1. Record to write-off an uncollectible...
Bad Debt Practice Exercises 26. The percentage of receivables method for estimating uncollectible accounts focuses on a net realizable value b. the relationship between accounts receivable and bad debts expense c. income statement relationships d. the relationship between sales and accounts receivable 27. Holman Company uses the percentage of credit sales method. Cash sales are $1,000,000 and credit sales are $4,000,000. Management estimates that 1% of sales will be bad. What adjusting entry will Homan Company make to record the...
Multiple Choice Question 113 Blue Spruce Corp. uses the percentage-of-receivables method for recording bad debt expense. The Accounts Receivable balance is $400000 and credit sales are $1600000. Management estimates that 6 % of accounts receivable will be uncollectible. What adjusting entry will Blue Spruce Corp. make if the Allowance for Doubtful Accounts has a credit balance of $4000 before adjustment? Bad Debt Expense 16000 Accounts Receivable 16000 Bad Debt Expense 20000 Allowance for Doubtful Accounts 20000 Bad Debt Expense 8000...
34. After aging the accounts receivable, it is estimated that $790 will not be collected and the allowance s an exristing debit balance of $230. The adjusting entry under the aging approach would b for the amount of $790. b. $230. c. $560. d $1,020. 35. After aging the accounts receivable, it is estimated that $420 will not be collected and the allowance account has an existing debit balance of $100. If accounts receivable is $14 would be a. $145,000....
3)At December 31, 2010, the trial balance of Worcester Company contained the following amounts before adjustment Debits $385,000 Credits Accounts receivable Allowance for doubtful accounts Sales $2,000 950,000 Based on the information given, which method of accounting for bad debts is Worcester Company using-the direct write-off method or the allowance method? Prepare the adjusting entry at December 31, 2010, for bad debts expense under each of the following independent assumptions (1) An aging schedule indicates that $11.750 of accounts receivable...
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