Evaluating Accounts Receivable

Evaluating Accounts Receivable - determining that an...

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Evaluating Accounts Receivable Business owners know that some customers who receive credit will never pay their account  balances. These uncollectible accounts are also called bad debts. Companies use two methods to  account for bad debts: the direct write-off method and the allowance method. Direct write-off method . For tax purposes, companies must use the direct write-off method, under  which bad debts are recognized only after the company is certain the debt will not be paid. Before 
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Unformatted text preview: determining that an account balance is uncollectible, a company generally makes several attempts to collect the debt from the customer. Recognizing the bad debt requires a journal entry that increases a bad debts expense account and decreases accounts receivable. If a customer named J. Smith fails to pay a $225 balance, for example, the company records the write-off by debiting bad debts expense and crediting accounts receivable from J. Smith....
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