Homework SourseWhat is the difference between direct writeoff method and al
| What is the difference between direct write-off method and allowance method? | ||||||
| Direct write-off method, a company does not anticipate bad debt expense. The allowance method is preferred over the direct write-off method because the accounts receivable will be presented on the balance sheet with a reduction called the allowance for doubtful accounts. | ||||||
| Jan 1. | At the beginning of the year, AA prepared the Aging of Accounts Receivable Schedule. | |||||
| Complete the table. | ||||||
| Customer | Amount | Current | Number of Days Past Due | |||
| (Not Yet Due) | 1~30 | 30~60 | 60~90 | |||
| CC | $ 10,000 | $ 10,000 | ||||
| DD | 1,000 | $ 1,000 | ||||
| EE | 2,000 | $ 2,000 | ||||
| FF | 5,000 | |||||
| GG | 3,000 | $ 3,000 | ||||
| Total | $ 21,000 | $ 1,000 | $ 10,000 | $ 2,000 | $ 3,000 | |
| Percentage considered uncollectible | 2% | 5% | 10% | 15% | ||
| Estimated Uncollectible Accounts | ||||||
| Jan 1. | AA had previous balance of Allowance for Doubtful Accounts ($170). | |||||
| How much do they have to add to match the estimated uncollectible accounts that you calculated above? | ||||||
| Jan 1. | Please complete the journal entry to add the amount that you calculated above to the allowance for D.A. | |||||
| Date | Explanation | Debit | Credit | |||
| Jan 1. | Post the allowance for doubtful accounts entries in T-account, and show the balance. | |||||
| Don\'t forget the previous balance | ||||||
| Allowance for Doubtful Account | ||||||
| Mar. 1 | Company AA sold rooms to BB on account ($100). | |||||
| Journalyze this transaction. | ||||||
| Date | Explanation | Debit | Credit | |||
| Mar. 31 | Company AA found that the account receivable for BB was uncollectible | |||||
| Journalyze this transaction based on allowance method | ||||||
| Date | Explanation | Debit | Credit | |||
| April 5. | BB notified that they would pay cash for their debt. | |||||
| Journalyze this transaction. | ||||||
| Date | Explanation | Debit | Credit | |||
| April 5. | AA received cash and cleared the receivable from BB | |||||
| Journalyze this tranxaction. | ||||||
| Date | Explanation | Debit | Credit | |||
| What is the difference between direct write-off method and allowance method? | ||||||
| Direct write-off method, a company does not anticipate bad debt expense. The allowance method is preferred over the direct write-off method because the accounts receivable will be presented on the balance sheet with a reduction called the allowance for doubtful accounts. | ||||||
| Jan 1. | At the beginning of the year, AA prepared the Aging of Accounts Receivable Schedule. | |||||
| Complete the table. | ||||||
| Customer | Amount | Current | Number of Days Past Due | |||
| (Not Yet Due) | 1~30 | 30~60 | 60~90 | |||
| CC | $ 10,000 | $ 10,000 | ||||
| DD | 1,000 | $ 1,000 | ||||
| EE | 2,000 | $ 2,000 | ||||
| FF | 5,000 | |||||
| GG | 3,000 | $ 3,000 | ||||
| Total | $ 21,000 | $ 1,000 | $ 10,000 | $ 2,000 | $ 3,000 | |
| Percentage considered uncollectible | 2% | 5% | 10% | 15% | ||
| Estimated Uncollectible Accounts | ||||||
| Jan 1. | AA had previous balance of Allowance for Doubtful Accounts ($170). | |||||
| How much do they have to add to match the estimated uncollectible accounts that you calculated above? | ||||||
| Jan 1. | Please complete the journal entry to add the amount that you calculated above to the allowance for D.A. | |||||
| Date | Explanation | Debit | Credit | |||
| Jan 1. | Post the allowance for doubtful accounts entries in T-account, and show the balance. | |||||
| Don\'t forget the previous balance | ||||||
| Allowance for Doubtful Account | ||||||
| Mar. 1 | Company AA sold rooms to BB on account ($100). | |||||
| Journalyze this transaction. | ||||||
| Date | Explanation | Debit | Credit | |||
| Mar. 31 | Company AA found that the account receivable for BB was uncollectible | |||||
| Journalyze this transaction based on allowance method | ||||||
| Date | Explanation | Debit | Credit | |||
| April 5. | BB notified that they would pay cash for their debt. | |||||
| Journalyze this transaction. | ||||||
| Date | Explanation | Debit | Credit | |||
| April 5. | AA received cash and cleared the receivable from BB | |||||
| Journalyze this tranxaction. | ||||||
| Date | Explanation | Debit | Credit | |||
Solution
Solution :
Estimated uncollectible accounts = $1,170
Amount to be added to match the estimated uncollectible accounts = Estimated uncollectible accounts - Previous balance of allowance for doubtful accounts = $1,170 - $170 = $1,000
| Computation of Allowance for Uncollectible Accounts | |||
| Ageing | Accounts Receivables | % Uncollectible | Required Allowance |
| Not yet due | $1,000.00 | 2% | $20.00 |
| 1-30 days | $10,000.00 | 5% | $500.00 |
| 30-60 days | $2,000.00 | 10% | $200.00 |
| 60-90 days | $3,000.00 | 15% | $450.00 |
| Total | $16,000.00 | $1,170.00 |
