When the direct write off method is used bad debt

This preview shows page 5 - 8 out of 9 pages.

We have textbook solutions for you!
The document you are viewing contains questions related to this textbook.
Financial Accounting: The Impact on Decision Makers
The document you are viewing contains questions related to this textbook.
Chapter 2 / Exercise 2-12
Financial Accounting: The Impact on Decision Makers
Norton/Porter
Expert Verified
increasing Bad Debts Expense and decreasing Accounts Receivable.When the direct write-off method is used, Bad Debt Expense will show only the actual losses from uncollectible. No attempt is made to match bad debt expense to sales revenue in the income statement or to show accounts receivable on the balance sheet at the amount expected to be received.Dishonored (defaulted) note: A note that is not paid in full at maturity.Factor: A finance company or bank that buys receivables from businesses for a fee and then collects the payments directly from the customers.Maker: The party in a promissory note who is making the promise to pay.Notes receivable: Written promise (as evidenced by a formal instrument) for amounts to be received.Notes receivable represent claims for which formal instruments of credit are issued as evidence of the debt.Other receivables: Other receivables include non-operational items.Payee: The party to whom payment of a promissory note is to be made.Percentage-of-receivables basis: A method of estimating the amount of bad debt expense whereby management establishes a percentage relationship between the amount of receivables and the expectedlosses from uncollectible accounts.Promissory note: A written promise to pay a specified amount of money on demand or at a definite time.Receivables: Amounts due from individuals and companies that are expected to be collected in cash.Trade receivables: Notes and accounts receivable that result from sales transactions.Accounting for Uncollectible Accounts: Two methods are used in accounting for uncollectible accounts: the direct write-off method and the allowance method.Valuing Notes Receivable: Notes receivable are reported at their cash realizable value.Receivables turnover ratioMeasures the number of times, on average, receivables are collected during the period. Net Credit SalesReceivables turnover ratio =Average Net ReceivablesAccounts receivable turnover$35,661($3,405 + $4,338)/2 = 9.2 times
We have textbook solutions for you!
The document you are viewing contains questions related to this textbook.
Financial Accounting: The Impact on Decision Makers
The document you are viewing contains questions related to this textbook.
Chapter 2 / Exercise 2-12
Financial Accounting: The Impact on Decision Makers
Norton/Porter
Expert Verified
Chapter 8 notes
Chapter 8 notes
Summary of Learning Objectives

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture