Chapter 8 Notes

Chapter 8 Notes - Chapter 8 Notes Accounting for...

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Chapter 8 Notes: Accounting for Receivables -Three issues with accounts receivable: -recognizing -valuing -disposing of -Direct write off only show actual losses from uncollectibles -unless losses are insignificant, DWO method unacceptable for financial reporting -GAAP requires allowance method when bad debts are material in amount 1) companies estimate uncollectible a/r. They match this estimated expense against revenue in the same accounting period in which they record the revenues. 2) Companies debit estimated uncollectibles to bad debts expense and credit them to allowance for doubtful accounts (contra-asset) through an adjusting entry at the end of the period 3) When companies write off a specific account, they debit actual uncollectibles to ADA and credit that amount to A/R. -can be recorded as an operating expense -AR less ADA -companies do not close ADA at the end of the fiscal year -Debit write offs from Allowance, not BDE -credit A/R -A write-off affects only balance sheet accounts; not income statement
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Chapter 8 Notes - Chapter 8 Notes Accounting for...

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