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Name: Companies that sell inventory on the account have bad debts to deal wi
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Description: Companies that sell inventory on the account have bad debts to deal with. Explain how we can account for Bad Debts Expense and comply with GAAP requirements.

Business

Accounting

Companies that sell inventory on the account have bad debts to deal with. Explain how we can account for Bad Debts Expense and comply with GAAP requirements.

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter6: Business Expenses

Section: Chapter Questions

Problem 10DQ

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how do companies account for bad debt? Why would they use an allowance account instead of directly crediting A/R? What are the various methods of accounting for bad debt? Describe the differences in how the expense is calculated.
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When a large account receivable balance is due from one client it is logical to use the direct write-off method to adjust the bad debt expense and accounts receivable balance. Under different circumstances, another method is used called the allowance method. Discuss the best reason(s) for using the allowance method and give some examples of companies that are likely to use that method. Also explain why it would ever be appropriate to use the direct write-off method, especially since it is not GAA
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What can be the effect of inventory errors on the financial reports? How can these errors be corrected?