Principles of Financial Accounting · free preview
Accounting for Uncollectible Accounts, Balance Sheet and Income Statement Approaches
Not every receivable collects, so the allowance method estimates bad debts, either as a percentage of sales on the income statement side or by aging receivables on the balance sheet side, and writes off specific accounts against the allowance when they prove uncollectible.
1. Why direct write-off fails
Why direct write-off fails
2. Income statement approach, percentage of sales
Income statement approach, percentage of sales
3. Balance sheet approach, aging receivables
Balance sheet approach, aging receivables
4. Write-offs and recoveries
Write-offs and recoveries
5. Allowance method purpose
What does the allowance method accomplish that direct write-off cannot?
6. Percentage of sales calculation
A company estimates bad debts at 1 percent of credit sales, and credit sales total 500,000 dollars. What is the adjusting entry?
7. Aging difference calculation
Aging schedules show a required allowance balance of 12,500 dollars, and the allowance account already carries a 3,000 dollar credit balance. What adjustment is required?
8. Write-off entry effect
A company writes off an 800 dollar account against an allowance that already holds adequate balance. What is the effect of the write-off entry?
9. Net realizable value
Accounts receivable total 120,000 dollars and the allowance for doubtful accounts holds a 7,500 dollar credit balance. Compute net realizable value in dollars, number only.
10. Aging required balance
An aging schedule computes required allowance of 12,500 dollars against an existing 3,000 dollar credit balance. Compute the bad debt expense adjustment in dollars, number only.
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