Answered: Explain the typical way companies…

Business

Accounting

Explain the typical way companies account for uncollectible accounts receivable (bad debts).

SWFT Comprehensive Volume 2019

42nd Edition

ISBN:9780357233306

Author:Maloney

Publisher:Maloney

Chapter7: Deductions And Losses: Certain Business Expenses And Losses

Section: Chapter Questions

Problem 1DQ

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Question

Explain the typical way companies account for uncollectible accounts receivable (bad debts).

Definition Definition Receivable amount that a company is owed, but did not receive, and which may not be receivable in future.

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Which method delays recognition of bad debt until the specific customer accounts receivable is identified? A. income statement method B. balance sheet method C. direct write-off method D. allowance method
Which account type is used to record bad debt estimation and is a contra account to Accounts Receivable?
Which of the following estimation methods considers the amount of time past due when computing bad debt? A. balance sheet method B. direct write-off method C. income statement method D. balance sheet aging of receivables method
Each time an account is written off under the direct write-off method, Bad Debt Expense is debited.
Discuss the differences between the allowance methods of recording bad debts and the direct write-off method.
Explain the typical way companies account for uncollectible accounts receivable (bad debts). When is it permissible to record bad debt expense only at the time when receivables prove uncollectible?
What happens if companies use the direct write-off method in accounting for bad debts? What will be the effect in the financial statements?
Explain why writing off a bad debt against the Allowance for Doubtful Accounts does not reduce the estimated realizable value of a company’s accounts receivable.
What would signify the net amount that a business foresees to receive when the allowance method of accounting is used for bad debts that involve estimating collectible accounts?
If a company uses the allowance method of accounting for bad debts, which one of the following statements is true?a. It violates the matching principle. b. It will record bad debts only when an account is determined to be uncollectible. c. It will reduce the accounts receivable at the end of the accounting period for estimated uncollectible accounts. d. It will report accounts receivable in the balance sheet at their net realizable value.
Answer the following questions in depth .... Isn't estimating bad debts a way of manipulating net income? How does a company keep control on these estimates? How does one go about determining if noncollectable receivables are within a reasonable range?
Explain why writing off a bad debt against a company's Allowance for Doubtful Accounts does not diminish the estimated realizable value of its accounts receivable.