Accounting for uncollectible accounts using the allowance (percent of-sales) and direct write-off methods and reporting receivables on the balance sheet On August 31, 2018, Forget-Me-Not Floral Supply had a $140,000 debit balance in Accounts Receivable and a $5,600 credit balance in Allowance for Bad Debts. During September, Forget-Me-Not made the following transactions: Sales on account, $530,000. Ignore Cost of Goods Sold. Collections on account, $573,000. Write-offs of uncollectible receivables, 56,000. Requirements Journalize all September entries using the allowance method. Bad debts expense was estimated at 2% of credit sales. Show all September activity in Accounts Receivable, Allowance for Bad Debts, and Bad Debts Expense (post to these T-accounts). Using the same facts, assume that Forget-Me-Not used the direct write-off method to account for uncollectible receivables. Journalize all September entries using the direct write-off method. Post to Accounts Receivable and Bad Debts Expense, and show their balances on September 30, 2018. What amount of Bad Debts Expense would Forget-Me-N-or report on its September income statement under each of the two methods? Which amount better matches expenses with revenue? Give your reason. What amount of net accounts receivable would Forget-Me-Not report on its September 30, 2018, balance sheet under each of the two methods? Which amount is more realistic? Give your reason.

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter7: Receivables And Investments

Section: Chapter Questions

Problem 7.1P: Allowance Method for Accounting for Bad Debts At the beginning of 2016, EZ Tech Companys Accounts...

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Accounting for uncollectible accounts using the allowance (percent of-sales) and direct write-off methods and reporting receivables on the balance sheet

On August 31, 2018, Forget-Me-Not Floral Supply had a $140,000 debit balance in Accounts Receivable and a $5,600 credit balance in Allowance for Bad Debts. During September, Forget-Me-Not made the following transactions:

Sales on account, $530,000. Ignore Cost of Goods Sold.
Collections on account, $573,000.
Write-offs of uncollectible receivables, 56,000.

Requirements

Journalize all September entries using the allowance method. Bad debts expense was estimated at 2% of credit sales. Show all September activity in Accounts Receivable, Allowance for Bad Debts, and Bad Debts Expense (post to these T-accounts).
Using the same facts, assume that Forget-Me-Not used the direct write-off method to account for uncollectible receivables. Journalize all September entries using the direct write-off method. Post to Accounts Receivable and Bad Debts Expense, and show their balances on September 30, 2018.
What amount of Bad Debts Expense would Forget-Me-N-or report on its September income statement under each of the two methods? Which amount better matches expenses with revenue? Give your reason.
What amount of net accounts receivable would Forget-Me-Not report on its September 30, 2018, balance sheet under each of the two methods? Which amount is more realistic? Give your reason.

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