Required if possible why is the allowance method

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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. •...
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This document was uploaded on 02/17/2014 for the course ACCTG 215 at University of Washington.

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