Discuss allowance method and direct write-off method

Assignment Help Accounting Basics
Reference no: EM1364637

Discuss the allowance method and the direct write-off method of accounting for bad debts. When is the expense for uncollected accounts receivable recognized under each method? Respond to at least two of your classmates' postings.

The allowance method takes a percentage of every sale or service and moves it to the allowance for uncollectibles account and to the uncollectible expense. This method goes ahead and accounts for their bad debt right when the service or sale takes place. This is good because the debt is recorded at the time of revenue. As for the direct write-off method, the bad debt is not recorded into the uncollectible expense until it has been decided to write it off. This is easier to keep up with in my opinion but it is not good when it comes to matching.

Most businesses have to deal with customers that open lines of credit with the company and they never pay their debits back. This debt is called bad debt. There are two methods a company can use. They are allowance and direct write-off methods.

Allowance method is preferred because the bad debts are matched to the principle of accounting. The bad or suspicious debts are estimated as expenses and recognized before the debts become uncollectible. For instance, an established company can rely on past experience to help them estimate bad debt so they can gage or estimate the bad debt before it happens.

Direct write-off method takes uncollectible accounts receivable and directly writes them off against income at the time they are actually determined as bad debts and they do not use any allowance or reserve accounts. For instance, the company will make several attempts to collect their money owed by sending out collection notices. When these attempts fail they are recognized as bad debt and the direct write-off method starts.

Reference no: EM1364637

Questions Cloud

Valuing investment assets : Ditka engineering company has signed a third party loan guarantee for liberty company. The loan is fro the national bank of illinois for $500,000. Liberty has recnetly filed for bankruptcy,
Explain how corona can sustain its position : Explain how Corona can sustain its position as one of the most desirable imported beers in the U.S. marketplace given the competitiveness of the beer market
Explain why does this happen : We are all familiar with fluctuating prices of gasoline at the pump. Explain why does this happen.
What is the mass of the sculpture : What horizontal force P must a worker exert on the rope to position 50 kg. crate directed over the trailer.
Discuss allowance method and direct write-off method : Discuss the allowance method and the direct write-off method of accounting for bad debts. When is the expense for uncollected accounts receivable recognized under each method? Respond to at least two of your classmates' postings.
Policy cycle : select one of these eight stages and identify why this stage is important in the policy cycle.
Write program to enter current value of car : Write a program that asks the user to enter the current value of a car. For a new car, it is the selling price of the car. The program should display the number of years it takes for the car's trade-in value to be below $1000.
Computing overall net operating income : In order to receive $12,000 at the end of three years and $10,000 at the end of five years, how much must be invested now if you can earn 14 percent rate of return?
Compute the learner index if the marginal cost of producing : Compute the Learner index if the marginal cost of producing Lipitor is $0.30 per pill. Does the Lerner index make sense in this situation.

Reviews

Write a Review

 

Accounting Basics Questions & Answers

  Determining the income tax-deduction

In 2003, Roland, who is single, purchased a personal residence for $340,000 and took out a mortgage of $200,000 on the property. In May of the current year, when the residence had a fair market value of $440,000 and Roland owed $140,000 on the mor..

  Prepare journal entry for autumn company

Prepare the journal entry to record Autumn Company's issuance of 63,000 share of no-par value common stock assuming the shares;

  Describe the contingencies

Discuss contingencies and how they're reported on financial statements. What conditions should be met before a contingency can be charged against income?

  Annual rate of bonds

In the section on the yield to call, a bond pays annual interest of $80 and matures after ten years. The bond is valued at $1,147 if the comparable rate is 6 percent and the bond is held to maturity.

  Inventory-notes-journal entries

Candlestick Corporation purchased raw material used for manufacturing candles from a supplier on June 1. The total amount of the purchase was $10,500 of which $3,000 was paid on the day of purchase. The remaining amount owed is due to the suppler ..

  Schedule of taxable income and journal entries

Prepare a schedule starting with pretax financial income and compute taxable income. Prepare the journal entry to record income taxes for 2011.

  Journal entry of building purchase-magazine subscription

A company buys a building with an appraised value of $100,000 for $30,000 cash and the assumption of a 25 year, 10% mortgage with a balance of $60,000

  Income statement of ohio corp

Ohio Corp. reported a deferred tax liability of $6,000,000 for the year ended December 31, 2012, when the tax rate was 40%. Income tax expense reported by Ohio on its year end December 31, 2013 income statement is:

  Continuous cycle-managerial accounting

Define planning, organizing, and controlling and then explain why the phases of planning, organizing, and controlling are referred to as a continuous cycle?

  What is the over or under absorbed overhead

How much overhead is allocated? What is the over/under absorbed overhead?

  Self-employment and proprietorship

John has $55,000 net earnings from the sole proprietorship. John is also employed by a major corporation and is paid $25,000. John' self-employment tax in 2013 is:

  Pros and cons of implementing ifrs in us

Prepare a proposal for what consulting services SLL should offer and to whom, inlcuding current auditing clients, other clients, or both.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd