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What is the difference between direct write-off method and allowance method? Direct write-off method, a company does not anticipate bad debt expense. The allowance method
What is the difference between direct write-off method and allowance method? | ||||||
Direct write-off method, a company does not anticipate bad debt expense. The allowance method is preferred over the direct write-off method because the accounts receivable will be presented on the balance sheet with a reduction called the allowance for doubtful accounts. | ||||||
Jan 1. | At the beginning of the year, AA prepared the Aging of Accounts Receivable Schedule. | |||||
Complete the table. | ||||||
Customer | Amount | Current | Number of Days Past Due | |||
(Not Yet Due) | 1~30 | 30~60 | 60~90 | |||
CC | $ 10,000 | $ 10,000 | ||||
DD | 1,000 | $ 1,000 | ||||
EE | 2,000 | $ 2,000 | ||||
FF | 5,000 | |||||
GG | 3,000 | $ 3,000 | ||||
Total | $ 21,000 | $ 1,000 | $ 10,000 | $ 2,000 | $ 3,000 | |
Percentage considered uncollectible | 2% | 5% | 10% | 15% | ||
Estimated Uncollectible Accounts | ||||||
Jan 1. | AA had previous balance of Allowance for Doubtful Accounts ($170). | |||||
How much do they have to add to match the estimated uncollectible accounts that you calculated above? | ||||||
Jan 1. | Please complete the journal entry to add the amount that you calculated above to the allowance for D.A. | |||||
Date | Explanation | Debit | Credit | |||
Jan 1. | Post the allowance for doubtful accounts entries in T-account, and show the balance. | |||||
Don't forget the previous balance | ||||||
Allowance for Doubtful Account | ||||||
Mar. 1 | Company AA sold rooms to BB on account ($100). | |||||
Journalyze this transaction. | ||||||
Date | Explanation | Debit | Credit | |||
Mar. 31 | Company AA found that the account receivable for BB was uncollectible | |||||
Journalyze this transaction based on allowance method | ||||||
Date | Explanation | Debit | Credit | |||
April 5. | BB notified that they would pay cash for their debt. | |||||
Journalyze this transaction. | ||||||
Date | Explanation | Debit | Credit | |||
April 5. | AA received cash and cleared the receivable from BB | |||||
Journalyze this tranxaction. | ||||||
Date | Explanation | Debit | Credit | |||
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