CAPITALIZATION

CAPITALIZATION - The direct write-off method used at the...

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CAPITALIZATION The amount written under the percentage-sale-method decreases the Bad Debt Expense account more than the direct write-off method. The $120 credit to Interest Receivable was to eliminate the amount accrued by the previous entry. The instrument most commonly used for this purpose is called a promissory note , and is a promise to pay a specified amount on a specified date. The period of 60 days is described as the term of the loan; the 6% figure is known as the interest rate . Appleby Associates would have noted the existence of an asset, Materials Inventory, at the end of January. Appleby Associates would have noted the existence of an inventory of materials, an asset, at the end of January. Note that the balance shown for Retained Earnings is equal to the net earnings for the year, less the dividends declared.
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Unformatted text preview: The direct write-off method used at the Emily Dickinson Corporation does not comply with generally accepted accounting principles (GAAP). Avery Company’s income statement for 2003 shows $451,200 in operating expenses in contrast to $4,064,400 in cost of goods sold, or less than 10 percent of the total. If the merchandise count had already included the goods in transit, then the previous entry would have understated the cost of goods sold, and the debit would have been to Cost of Goods Sold rather than to Merchandise Inventories. In this transaction, the bookkeeper debited Accounts Receivable and credited Sales for $7,900. The bad debt expense for the period will be $44,000. The difference in expense amounts recognized equals $12,670, thus net income is lower by that amount....
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This note was uploaded on 02/04/2012 for the course ENG 101 taught by Professor Yukov during the Spring '11 term at UCLA.

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CAPITALIZATION - The direct write-off method used at the...

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