A chocolate company has hired your firm for help. You work for the accounting company as a research and accounting specialist. Troy inc asked you to research and disclose the US GAAP rules for recording Accounts Receivable and estimating their allowance for doubtful accounts. The client wants you to reference and explain the rules in the FASB codification for this topic. Kay Candy Inc. will then use your business professional memo to look up the rules in the codification.
What conditions need to be met in order to record a loss (bad debt expense) in relation to allowing companies to purchase goods on credit (loans to customers)?
- How should a company calculate an estimate to determine the amount of accounts receivable (loan balance) that may be uncollectible?
- What needs to be disclosed in the footnotes in regards to the company's allowance for doubtful accounts?
- If the company decides to sell their receivables, what is the accounting guidance on the transfer of receivables and does this impact the allowance calculation?
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