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There are three main methods for accounting for uncollectible accounts receivable: the direct write-off method, the allowance method, and the reserve method. The allowance method is preferred for financial reporting purposes when a reasonable estimate of uncollectible accounts can be made. Under the allowance method, the expense of bad debts is recognized when it is determined a customer will not pay, and an adjusting entry is made to increase the allowance for bad debts account. Two common methods for estimating uncollectible accounts are the percentage of sales method and the percentage of receivables method.

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Randy Manzano
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80 views1 page

First Document

There are three main methods for accounting for uncollectible accounts receivable: the direct write-off method, the allowance method, and the reserve method. The allowance method is preferred for financial reporting purposes when a reasonable estimate of uncollectible accounts can be made. Under the allowance method, the expense of bad debts is recognized when it is determined a customer will not pay, and an adjusting entry is made to increase the allowance for bad debts account. Two common methods for estimating uncollectible accounts are the percentage of sales method and the percentage of receivables method.

Uploaded by

Randy Manzano
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Accounting for Accounts Receivable

1. Most people tend to buy more if they can "charge it" rather than pay cash.
2. The percentage of sales method is often referred to as aging the receivables.
3. The percentage of sales method emphasizes proper estimating and reporting of bad debt expense on
the income statement and the matching of expenses with revenues.
4. Under the accrual basis of accounting, the allowance method is generally required for financial
reporting purposes.
5. The direct write-off method has one advantageit is very simple to apply.
6. The matching concept states that expenses incurred to produce particular revenues should be matched
with those revenues.
7. The allowance for bad debts account may have a debit balance prior to adjustment.
8. There are three methods of accounting for uncollectible accountsthe direct write-off method, the
allowance method, and the reserve method.
9. Under the allowance method, the expense associated with an uncollectible account is recognized when
it has been determined that a customer will not pay the amount owed.
10. The expense of extending credit to make a sale should be recognized in the same period as the revenue
from the sale.
11. When it is possible to make a reasonable estimate of the amount of uncollectible accounts, the
allowance method is preferred for financial reporting purposes.
12. The credit portion of an adjusting entry to enter the estimate for uncollectible accounts can be made
directly to a specific receivable account.
13. The term "net receivables" refers to the difference between Accounts Receivable and Allowance for
Bad Debts.
14.Two basic methods are used for estimating the amount of uncollectibles at the end of the accounting
periodthe percentage of sales method and the percentage of receivables method.
15. Some businesses and individuals who "charge it" are unwilling or unable to "pay for it."
16. Under the direct write-off method, the bad debt expense is not recognized until it has been determined
that an account is uncollectible.
17. Under the percentage of receivables method, the adjusting entry at the end of the period for bad debt
expense is not affected by the current balance in the allowance for bad debts account.
18. Whenever a company elects to make sales on account, it is inevitable that some receivables will
become uncollectible.
19. Most firms are able to increase sales by extending credit to customers.
20. One method for estimating the amount of uncollectibles involves taking a percentage of sales on
account.
21. The allowance for bad debts account may have a credit balance prior to adjustment.
22. Under the percentage of sales method, the adjusting entry at the end of the period for bad debt expense
is affected by the current balance in the allowance for bad debts account.
23. If actual write-offs are significantly higher or lower than estimated uncollectible accounts over a
number of periods, a large debit or credit balance will accumulate in the allowance for bad debts
account.
24. Under the percentage of sales method, the accounts receivable are analyzed to estimate the amount that
will not be collected.
25. If after taking a percentage of sales on account, it is estimated that $1,000 will not be collected and the
allowance account has an existing credit balance of $200, the adjusting entry would be for the amount
of $800.

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