Chap007wildtextbook(1)

Date pr debit credit balance 1000 200 accounts

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Date PR Debit Credit Balance Jul. 16 1,000 1,000 Jul. 31 800 200 Accounts Receivable Ledger Webster, Co. Webster, Co. 450 $ Matrix, Inc. 200 Total 650 $ Schedule of Accounts Receivable Date PR Debit Credit Balance Jul. 16 1,950 1,950 Jul. 31 1,300 650 General Ledger Accounts Receivable
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Some customers may not pay their account. Uncollectible amounts are referred to as bad debts. There are two methods of accounting for bad debts: ¡ Direct Write-Off Method ¡ Allowance Method Valuing Accounts Receivable 7-11
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On August 4, Barton determines it cannot collect $350 from Martin, Inc., a credit customer. Direct Write-Off Method 7-12 DR CR Aug. 4 Bad Debts Expense 350 Accounts Receivable - Martin 350 To write-off uncollectible account
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On September 9, Martin decides to pay $200 that was previously written off. Direct Write-Off Method 7-13 DR CR Sep. 9 Accounts Receivable - Martin 200 Bad Debts Expense 200 To reinstate account previously written-off Sep. 9 Cash 200 Accounts Receivable - Martin 200 To record payment on account
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Matching vs. Materiality The Matching Principle requires expenses to be reported in the same accounting period as the sales they help produce. The Materiality Constraint states that an amount can be ignored if its effect on the financial statements is unimportant to users’ business decisions. 7-14
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At the end of each period, estimate total bad debts expected to be realized from that period’s sales. There are two advantages to the allowance method: 1. It records estimated bad debts expense in the period when the related sales are recorded. 2. It reports accounts receivable on the balance sheet at the estimated amount of cash to be collected. Allowance Method 7-15
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Recording Bad Debts Expense At the end of its first year of operations, Barton Co. estimates that $3,000 of its accounts receivable will prove uncollectible. The total accounts receivable balance at December 31, 2011, is $278,000. Contra-asset account 7-16 Bal. 278,000 Accounts Receivable Dec. 31 3,000 Allowance for Doubtful Accounts DR CR Dec. 31 Bad Debts Expense 3,000 Allowance for Doubtful Accounts 3,000 To record estimated bad debts
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Recording Bad Debts Expense At the end of its first year of operations, Barton Co. estimates that $3,000 of its accounts receivable will prove uncollectible. The total accounts receivable balance at December 31, 2011, is $278,000. 7-17 DR CR Cash Accounts receivable 278,000 $ Less: Allowance for doubtful accounts 3,000 275,000 $ Barton, Co. Partial Balance Sheet December 31, 2011
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Two Methods 1. Percent of Sales Method; and 2. Accounts Receivable Methods Percent of Accounts Receivable Method Aging of Accounts Receivable Method.
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