ACC 231 Lecture Notes - Lecture 14: Income Statement, Promissory Note, Accounts Receivable

162 views3 pages

cerisegiraffe538

19 Mar 2018

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

In general, accounts receivable should be reported at the amount that will turn into cash. When customers purchase on credit there is some risk that the customer will not pay. Bad debt is the expense of allowing credit sales. When credit sales are made bad debt is an estimation of those credit sales that will not be collected. We"re never sure which customers will pay and which customers will not. Should match bad debt expense against revenue in the period of the sale (matching principle) 3 methods used to estimate bad debts. 2. allowance method - % of credit sales and. Usually used for firms with bad debt that is not material or only have a few customers who purchase using credit. Estimated bad debt expense is a % of credit sales. Each company will determine an appropriate % and simple multiply that % by net. 1. write back on the a/r you previously wrote off.

Related Questions

6. The bad-debt method that uses the accounts receivable agingreport is _______________.

	the bad-debt expense method
	the percentage-of-sales method
	the direct write-off method
	the percentage-of-receivables method

7. When it is determined that too much money has been set asidefor uncollectible accounts, we will _______________.

	credit reserve for uncollectible accounts
	debit accounts receivable
	credit cash
	debit reserve for uncollectible accounts

8. A customer whose account was previously written offunexpectedly pays us. If we are using the allowance method we would_______________.

	debit accounts receivable and credit allowance for uncollectibleaccounts AND debit cash and credit accounts receivable
	debit cash and credit bad-debt expense
	debit reserve for uncollectible accounts and credit cash
	debit bad-debt expense and credit cash

9. When a retailer accepts a bank card (VISA or MasterCard),they will make what entry for the dayâs receipts?

	debit cash and debit âcredit card expenseâ; credit sales
	debit accounts receivable and credit sales
	debit cash and credit sales
	debit accounts receivable; credit sales, and credit âcredit cardexpenseâ

mauvemarten239

Raintree Cosmetic Company sells its products to customers on a credit basis. An adjusting entry for bad debt expense is recorded only at December 31, the companyâs fiscal year-end. The 2017 balance sheet disclosed the following: Current assets: Receivables, net of allowance for uncollectible accounts of $48,000 $ 522,000 During 2018, credit sales were $1,840,000, cash collections from customers $1,920,000, and $57,000 in accounts receivable were written off. In addition, $4,800 was collected from a customer whose account was written off in 2017. An aging of accounts receivable at December 31, 2018, reveals the following: Percentage of Year-End Percent Age Group Receivables in Group Uncollectible 0â60 days 70 % 5 % 61â90 days 20 15 91â120 days 5 20 Over 120 days 5 40 Required: 1. Prepare summary journal entries to account for the 2018 write-offs and the collection of the receivable previously written off. 2. Prepare the year-end adjusting entry for bad debts according to each of the following situations: Bad debt expense is estimated to be 4% of credit sales for the year. Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is estimated to be 10% of the year-end balance in accounts receivable. Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is determined by an aging of accounts receivable. 3. For situations (a)â(c) in requirement 2 above, what would be the net amount of accounts receivable reported in the 2018 balance sheet?

pinkantelope545

The following selected transactions were taken from the recordsof Shipway Company for the first year of its operations endingDecember 31:

Apr. 13

Wrote off account of Dean Sheppard, $5,190.

May 15

Received $2,600 as partial payment on the $6,900 account of DanPyle. Wrote off the remaining balance as uncollectible.

July 27

Received $5,190 from Dean Sheppard, whose account had beenwritten off on April 13. Reinstated the account and recorded thecash receipt.

Dec. 31

Wrote off the following accounts as uncollectible (record asone journal entry):

Paul Chapman	$3,480
Duane DeRosa	2,600
Teresa Galloway	1,560
Ernie Klatt	2,180
Marty Richey	780

Dec. 31

If necessary, record the year-end adjusting entry for theuncollectible accounts.

For those amount boxes in which no entry is required, leave thebox blank. If an entry is not required, select "No entry" from thedropdown box(es).

a. Journalize the transactions under the directwrite-off method.

Apr. 13	Bad Debt Expense
	Accounts Receivable-DeanSheppard
May 15	Cash
	Bad Debt Expense
	Accounts Receivable-DanPyle
July 27-reinstate	Accounts Receivable-DeanSheppard
	Bad Debt Expense
July 27-collection	Cash
	Accounts Receivable-DeanSheppard
Dec. 31-write-off	Bad Debt Expense
	Accounts Receivable-PaulChapman
	Accounts Receivable-DuaneDeRosa
	Accounts Receivable-TeresaGalloway
	Accounts Receivable-ErnieKlatt
	Accounts Receivable-MartyRichey
Dec. 31-adjusting	No entry
	No entry

b. Shipway Company uses the percent of creditsales method of estimating uncollectible accounts expense. Based onpast history and industry averages, 2% of credit sales are expectedto be uncollectible. Shipway Company recorded $1,266,500 of creditsales during the year.

Journalize the transactions under the allowance method.

Apr. 13	Allowance for DoubtfulAccounts
	Accounts Receivable-DeanSheppard
May 15	Cash
	Allowance for DoubtfulAccounts
	Accounts Receivable-DanPyle
July 27-reinstate	Accounts Receivable-DeanSheppard
	Allowance for DoubtfulAccounts
July 27-collection	Cash
	Accounts Receivable-DeanSheppard
Dec. 31-write-off	Allowance for DoubtfulAccounts
	Accounts Receivable-PaulChapman
	Accounts Receivable-DuaneDeRosa
	Accounts Receivable-TeresaGalloway
	Accounts Receivable-ErnieKlatt
	Accounts Receivable-MartyRichey
Dec. 31-adjusting	Bad Debt Expense
	Allowance for DoubtfulAccounts

Feedback

Remember that under the direct write-off method, Bad DebtExpense is not recorded until the customer's account is determinedto be worthless.

Under the allowance method once a customer account is identifiedas uncollectible, it is written off against the allowanceaccount.

Learning Objective 5.

c. How much higher (lower) would ShipwayCompany's net income have been under the direct write-off methodthan under the allowance method?

ACC 231 Lecture Notes - Lecture 14: Income Statement, Promissory Note, Accounts Receivable

Document Summary

Get access

Related Documents

ACC 231 Exam Solutions Fall 2018: Accounts Receivable, Bank Statement

ACC 231 Study Guide - Midterm Guide: Accounts Receivable, Bank Statement

ACCT1501 Chapter Notes - Chapter 8-10: Internal Control, Income Statement, European Cooperation In Science And Technology

Related Questions