ACCT1080 Notes.docx - Class Notes Chapter 8 Accounts and...

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Class Notes Chapter 8: Accounts and Notes Receivable Method for determining bad debt (receive no money) Do companies want bad debt? YES - Why? How do you guarantee that you will have no bad debt? You don't give out credit. Deal with Cash only sales. If you do this, you will eliminate a lot of business b/c many people use credit vs. cash Goal in business is to maximize profit. It's worth getting one bad debt account in order to gain 7 good credit accounts Want to match the estimate of bad debt to sales. There are 2 ways to account for bad debt: Contra Account to Accounts Receivable is Allowance for Uncollectible Debt _ DIRECT WRITE-OFF METII_ (1) Record the sale Accounts Receivable (total) Dr. Sales Cr. 1 Entry: (2) Record Bad Debt & Write Off Bad Debt Expense Dr. A/R - Co. Name Cr
* * Wait until you know who the bad debt account is and then write it off because you will never extend credit to that company again (3) Reinstate the Receivable A/R – Co. name Dr. Bad Debt Expense Cr.

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