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Chapter 6

ACC chapter 6.docx

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Department
Accounting
Course
ACC 110
Professor
Else Grech
Semester
Winter

Description
Chapter 6 continued Writing off receivables - Write offs have no impact on the net amount of accounts recievable which is (A/R – allowance for uncollectibles) Comparisons of the two methods - The direct writeoff method under accrual accounting cannot be applied as the direct write off only recognizes an expense periods after the sale was made, therefore they are not recognized in the same period. The % of credit sales and receivables provide a bad debt expense and report accounts recievable at the amount that is expected to be collected. - The need to use judgment to determine the amount of bad debt expense , the balance in the allowance account and the decision to write off a specific account receivable can be exploited by the manager to pursue their own benefits Returns - Returns are a contra revenue account because if a person returns an item, the sale has never occurred therefore no revenue was earned, therefore it is deducted from revenue - Revenue reported on the income statement is reported after returns have been deducted from the revenue that is earned - If returns are not recorded, the revenue would be overstated as a result of not taking account the possibility therefore misleading stakeholders Long term recievables - If no interest is paid on a long term accounts receivable or if the interest rate that is charged is below the market rate, the
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