The following list describes aspects of either the allowance method or the direct write-off method to account for bad debts. For each item listed, indicate if the statement best describes either the allowance (A) method or the direct write-off (DW) method.
4. When an account is written off, the debit is to Bad Debts Expense.
The correct answer is the Direct write-off (DW) method.
Bad debt expense is subtracted from the amount of debtors in the organization's balance sheet while recording the closing amount of the company's debtor at the end of the financial year.
When an organization records the transaction of bad debt using the direct write-off method, the amount of bad debt expense is debited against the firm's accounts receivables while passing a journal entry in the journal book of the firm.
Warner Company’s year-end unadjusted trial balance shows accounts receivable of $99,000, allowance for doubtful accounts of $600 (credit), and sales of $280,000. Uncollectibles are estimated to be 1.5% of accounts receivable.
2. What amount would have been used in the year-end adjusting entry if the allowance account had a year-end unadjusted debit balance of $300?
The following information is from the annual financial statements of Raheem Company. Compute its accounts receivable turnover for 2016 and 2017. Compare the two years’ results and give a possible explanation for any change (competitors average a turnover of 11).
2017 2016 2015
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $405,140 $335,280 $388,000
Accounts receivable, net (year-end) . . . . . . . . . . . . 44,800 41,400 34,800
BTN 7-9 Key information from Samsung (Samsung.com), which is a leading manufacturer of consumer electronic products, follows.
W in millions
One year prior
Two years prior
Accounts receivables Net
1. Compute its accounts receivable turnover for the current year.
2. How long does it take on average for Samsung to collect receivables?
3. Refer to BTN 7-2. How does Samsung compare to Apple and Google in terms of its accounts receivable turnover and its collection period?
As the accountant for Pure-Air Distributing, you attend a sales managers’ meeting devoted to a discussion of credit policies. At the meeting, you report that bad debts expense is estimated to be $59,000 and accounts receivable at year-end amount to $1,750,000 less a $43,000 allowance for doubtful accounts. Sid Omar, a sales manager, expresses confusion over why bad debts expense and the allowance for doubtful accounts are different amounts. Write a one-page memorandum to him explaining why a difference in bad debts expense and the allowance for doubtful accounts is not unusual. The company estimates bad debts expense as 2% of sales.
94% of StudySmarter users get better grades.Sign up for free