Direct write-off method:
This method does not make allowance or estimation for uncollectible accounts, instead this method directly write-off the actual uncollectible accounts by debiting bad debt expense and by crediting accounts receivable. Under this method, accounts would be written off only when the receivables from a customer remain uncollectible.
Allowance method:
It is a method for accounting bad debt expense, where uncollectible accounts receivables are estimated, and recorded at the end of particular period. Under this method,
To write: A short memorandum to the President of the company describing that the company should use the allowance method instead of direct write off method.
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Intermediate Accounting, 10 Ed
- Aging of receivables; estimating allowance for doubtful accounts Trophy Fish Company supplies flies and fishing gear to sporting goods stores and outfitters throughout the western United States. The accounts receivable clerk for Trophy Fish prepared the following partially completed aging of receivables schedule as of the end of business on December 31, 20Y4: The following accounts were unintentionally omitted from the aging schedule. Assume all due dates are for the current year except for Wolfe Sports, which is due in the next year. Customer Due Date Balance Adams Sports Flies May 22 5,000 Blue Dun Flies Oct. 10 4,900 Cicada Fish Co. Sept. 29 8,400 Deschutes Sports Oct. 20 7,000 Green River Sports Nov. 7 3,500 Smith River Co. Nov. 28 2,400 Western Trout Company Dec. 7 6,800 Wolfe Sports Jan. 20 4,400 Trophy Fish has a past history of uncollectible accounts by age category, as follows: Age Class Percent Uncollectible Not past due 1% 1-30 days past due 2 31-60 days past due 10 61-90 days past due 30 91-120 days past due 40 Over 120 days past due 80 Instructions 1. Determine the number of days past due for each of the preceding accounts. 2. Complete the aging of receivables schedule by adding the omitted accounts to the bottom of the schedule and updating the totals. 3. Estimate the allowance for doubtful accounts, based on the aging of receivables schedule. 4. Assume that the allowance for doubtful accounts for Trophy Fish Company has a debit balance of 3,600 before adjustment on December 31. Journalize the adjusting entry for uncollectible accounts. 5. Assume that the adjusting entry in (4) was inadvertently omitted, how would the omission affect the balance sheet and income statement?arrow_forwardError in accounts payable subsidiary ledger After Bunker Hill Assay Services Inc. had completed all postings for March in the current year (20Y4), the sum of the balances in the following accounts payable ledger did not agree with the 36,600 balance of the controlling account in the general ledger: Assuming that the controlling account balance of 36,600 has been verified as correct, (a) determine the error(s) in the preceding accounts and (b) prepare a listing of accounts payable creditor balances (from the corrected accounts payable subsidiary ledger).arrow_forwardProviding for doubtful accounts At the end of the current year, the accounts receivable account has a debit balance of 2,950,000 and sales for the year total 27,400,000. Determine the amount of the adjusting entry to provide for doubtful accounts under each of the following assumptions: A. The allowance account before adjustment has a debit balance of 9,500. Bad debt expense is estimated at of 1% of sales. B. The allowance account before adjustment has a debit balance of 9,500. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of 188,000. C. The allowance account before adjustment has a credit balance of 31,400. Bad debt expense is estimated at 1/2 of 1% of sales. D. The allowance account before adjustment has a credit balance of 31,400. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of 175,000.arrow_forward
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