COMMERCE 1AA3 Study Guide - Final Guide: Income Statement, Current Asset, Matching Principle

• School: McMaster University
• Department: Commerce
• Course: COMMERCE 1AA3
• Professor: Aadil Merali Juma

Document Summary

Account receivable is payment of provide goods/service on credit. However, it could cost bad debt expense/ uncollectible account expense/ doubtful account expense. In financial statements, it show as allowance for bad debt. 2 method: direct write off method (less prefer) It violating the matching principle. a) b: when account receivable are considered uncollectible, it recognizes bad debt expense. Under this method, while an account is deemed uncollectable, net income and asset are decrease. And equity also decrease: the allowance method (2 method) a) it recognizes bad debt expense when a/r are estimated( ) uncollectible i. Percentage of net sales / income statement method: this method ignore the beginning balance, under this method. Journal entry to record the allowance they think will be: Aging of account receivable / balance sheet method. In this method, bad debt expense is determined from the aging schedule for a/r: step for calculation a) Sti is the revenue that sale price minus purchase price.