ACCTG 101 Lecture Notes - Lecture 10: Financial Institution, Promissory Note, Accounts Receivable

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rosebutterfly172

20 Aug 2020

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Under the parentage of receivables approach, bad debt expense is a function of a company"s receivables balance. Since the allowance method for bad debt relies on estimates, a company"s allowance balance prior to adjustment can have either a debit or credit balance. A debit balance means that the company has experienced greater write- offs during the year than expected. A credit balance indicates that write offs have been less expected. Whether the balance is a debit or credit does not require a company to correct its bad debt expense from the prior year. However, it does affect the adjustment for the current year. The major advantage is that it results in a very meaningful net realisable value. This is because the allowance account is determined as a set percentage of receivables. The disadvantage is that it does not match expenses as well as the percentage of sales approach.

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

Entries for Bad Debt Expense Under the Direct Write-Off and Allowance Methods

Seaforth International wrote off the following accounts receivable as uncollectible for the year ending December 31:

Customer		Amount
Kim Abel		$21,550
Lee Drake		33,925
Jenny Green		27,565
Mike Lamb		19,460
	Total	$102,500

The company prepared the following aging schedule for its accounts receivable on December 31:

Aging Class (Number of Days Past Due)	Receivables Balance on December 31		Estimated Percent of Uncollectible Accounts
0-30 days		$715,000	1	%
31-60 days		310,000	2
61-90 days		102,000	15
91-120 days		76,000	30
More than 120 days		97,000	60
Total receivables		$1,300,000

a. Journalize the write-offs for under the direct write-off method. If an amount box does not require an entry, leave it blank.

b. Journalize the write-offs and the year-end adjusting entry under the allowance method, assuming that the allowance account had a beginning credit balance of $95,000 on January 1 and the company uses the analysis of receivables method. For a compound transaction, if an amount box does not require an entry, leave it blank.

Write-off




Adjustment

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

rosegiraffe2

ACCTG 101 Lecture Notes - Lecture 10: Financial Institution, Promissory Note, Accounts Receivable

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