E6.33 - $650,000 (desired balance) $5,000 (remaining credit...

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EXERCISE 6–33 Accounting for Bad Debts 1a.The direct write-off method: Bad Debt Expense 630,000 Accounts Receivable 630,000 To record uncollectible accounts receivable of $630,000. Accounts Receivable 35,000 Retained Earnings 35,000 To reinstate the balance previously written off as uncollectible. Cash 35,000 Accounts Receivable 35,000 Received payment of $35,000. 1b. The allowance method: Allowance for Bad Debts 600,000 Accounts Receivable 600,000 To write off uncollectible accounts. Accounts Receivable 35,000 Allowance for Bad Debts 35,000 To reinstate the balance previously written off as uncollectible. Cash 35,000 Accounts Receivable 35,000 Received payment of $35,000. Bad Debt Expense 645,000 Allowance for Bad Debts 645,000 To adjust the allowance account to the desired balance of $650,000.* *$600,000 (beginning balance 2009) – $630,000 (written off in 2009) + $35,000 (restored in 2009) = $5,000 (remaining credit balance)
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Unformatted text preview: $650,000 (desired balance) $5,000 (remaining credit balance) = $645,000 (adjustment needed). 2. The direct write-off method is objective in that an account is written off at the time it proves to be uncollectible. This method, however, compromises the matching principle because expenses incurred in generating revenues may not be accurately matched with related revenues on a period-by-period basis. For example, sales made near the end of an accounting period may not be identified as uncollectible until the next period. Alternatively, when using the allowance method, uncollectible balances are accounted for during the period in which the sales occurred. Although the allowance method is generally accepted in practice, it may result in a somewhat imprecise expense amount; this is seen as a less serious problem than the failure to match revenues and expenses (direct write-off)....
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This note was uploaded on 06/20/2011 for the course ECON 123 taught by Professor Mrews during the Spring '11 term at Korea Advanced Institute of Science and Technology.

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E6.33 - $650,000 (desired balance) $5,000 (remaining credit...

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