Required if possible why is the allowance method

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ible) • Why is the allowance method “better” than the specific write-off method? Specific write-off method On December 1 Viper Company sells $500,000 worth of goods to Wildcat Corporation on credit with terms of 5/5, n/20. On January 20 Viper learns that Wildcat has gone out of business and will not pay its bill. • Help Viper record this transaction on December 1 • Help Viper record this transaction on January 20 Allowance method • Two methods used to estimate uncollectible accounts: - Percent of accounts receivable Aging of accounts receivable • Create a contra account called: - Allowance for uncollectible accounts Allowance for doubtful accounts Allowance for bad debts Reserve for doubtful accounts All mean the same thing Allowance method • Journal entries associated with the allowance method: - Recording the period’s estimate of uncollectible accounts. - Writing off specific accounts when they go bad. - Collecting a previously written off account. Allowance method--% of A/R At the end of the year Voodoo Company has credit sales of $100,000. Historically 6% of accounts receivable are not collected. At the end of the year (before adjustments) the allowance for uncollectible accounts has a credit balance of $120. The ending balance in accounts receivable is $13,000. •...
View Full Document

Ask a homework question - tutors are online