ACT 205 Lecture Notes - Lecture 12: Accounts Receivable, Income Statement, London Agreement On German External Debts

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skykangaroo617

8 Mar 2018

School

CSU

Department

Accounting

Course

ACT 205

Professor

Sally Plasterer Whitney

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Document Summary

When it becomes clear the customer will not pay, the company writes off the customer"s account balance as uncollectible. Reduces the balance of the allowance for uncollectible accounts. Decreasing a contra asset (allowance for uncollectible accounts. The write-off has no effect on total assets (balance sheet) or total expenses (income statement) Adjusting entry at the end of the previous year. ***when you have an actual bad account, do not increase bad debt expense! Allowance method for uncollectible accounts: estimate uncollectible accounts, adjust allowance. Credit allowance for uncollectible accounts (contra asset: bad debt occurs. Apply payment: accounts receivable stated net (or minus) of allowance (amount expected to collect) Allowance for uncollectible accounts is not closed at the end of the year (permanent account) Bad debt expense is not recorded when an actual write-off occurs. A write-off of accounts receivable affects only balance sheet accounts. A recovery of accounts receivable affects only balance sheet accounts.

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

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?

The ledger of Sairu Company at the end of the current year shows Accounts Receivable $195,000, Sales Revenue $1,800,000, and Sales Returns and Allowances $60,000.

Instructions:

(a) If Sairu uses the direct write-off method to account for uncollectible accounts, journalize the adjusting entry at December 31, assuming Sairu determines that Mashfi's $2,500 balance is uncollectible.

(b) If Allowance for Doubtful Accounts has a credit balance of $3,500 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be 9% of accounts receivable.

(c) If Allowance for Doubtful Accounts has a debit balance of $590 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be 7% of accounts receivable.

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ACT 205 Lecture Notes - Lecture 12: Accounts Receivable, Income Statement, London Agreement On German External Debts

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