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Accounts receivable direct write off method for

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Unformatted text preview: Describe the methods used to account for bad debts. Valuing Accounts Receivable Valuing Accounts Receivable Allowance Method for Uncollectible Accounts 1. Companies estimate uncollectible accounts receivable. 2. Debit Bad Debts Expense and credit Allowance for Doubtful Accounts (a contra-asset account). 3. Companies debit Allowance for Doubtful Accounts and credit Accounts Receivable at the time the specific account is written off as uncollectible. 8-24 SO 3 Describe the methods used to account for bad debts. Valuing Accounts Receivable Valuing Accounts Receivable Illustration: Hampson Furniture has credit sales of $1,200,000 in 2012, of which $200,000 remains uncollected at December 31. The credit manager estimates that $12,000 of these sales will prove uncollectible. Dec. 31 Bad debts expense Allowance for doubtful accounts 8-25 12,000 12,000 SO 3 Describe the methods used to account for bad debts. Valuing Accounts Receivable Valuing Accounts Receivable Illustration 8-3 Presentation of allowance for doubtful accounts 8-26 SO 3 Describe the methods used to account for bad debts. Valuing Accounts Receivable Valuing Accounts Receivable Recording Write-Off of an Uncollectible Account Illustration: The vice-president of finance of Hampson Furniture on March 1, 2013, authorizes a write-off of the $500 balance owed by R. A. Ware. The entry to record the write-off is: Mar. 1 Allowance for doubtful accounts Accounts receivable 500 500 Illustration 8-4 8-27 SO 3 Describe the methods used to account for bad debts. Valuing Accounts Receivable Valuing Accounts Receivable Recovery of an Uncollectible Account Illustration: On July 1, R. A. Ware pays the $500 amount that Hampson Furniture had written off on March 1. Hampson makes these entries: July 1 Accounts receivable 500 Allowance for doubtful accounts 1 Cash 500 Accounts receivable 8-28 500 500 SO 3 Describe the methods used to account for bad debts. Valuing Accounts Receivable Valuing Accounts Receivable Estimating the Allowance Under the percentage of receivables basis, management establishes a percentage relationship between the amount of receivables and expected losses from uncollectible accounts. 8-29 SO 3 Describe the methods used to account for bad debts. Valuing Accounts Receivable Valuing Accounts Receivable Aging the accounts receivable - customer balances are classified by the length of time they have been unpaid. Illustration 8-6 8-30 SO 3 Describe the methods used to account for bad debts. SO Valuing Accounts Receivable Valuing Accounts Receivable Estimating the Allowance Illustration: Assume the unadjusted trial balance shows Allowance for Doubtful Accounts with a credit balance of $528. Prepare the adjusting entry assuming $2,228 is the estimate of uncollectible receivables from the aging schedule. Dec. 31 Bad debts expense Allowance for doubtful accounts Illustration 8-7 Bad debts accounts after posting 8-31 1,700 1,700 Valuing Accounts Receivable Valuing Accounts Receivable Illustration 8...
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