Preview

accounting

Satisfactory Essays
Open Document
Open Document
279 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
accounting
Classmates,

According to (Oster, 2014), "Percentage of receivables and percentage of sales are two accounting allowance methods used to reconcile customer accounts deemed noncollectable. When allowed by generally accepted accounting principles (GAAP), these two strategies are preferred over direct write-off of bad debt expenses. Percentage of receivables and percentage of sales provide a business with the ability to accurately estimate the expected bad debt losses they will have in each succeeding fiscal reporting period." Percentage of sales method is a good way to see an estimate for bad allowance under the Henerally Accepted Accounting Principles (GAAP).For GAAP it does not allow a direct write off method. Percentage of receivables is accounted for on the balance sheet that is annually done. There are doubtful accounts that have to be accounted for in the journal.

Using both of these methods at the same time is not a good thing because they are both accounted for in different sections of accounting, receivable is acocunted in the balance sheet while percentage of sales is accounted for in the annual income statement. "Using percentage of sales and percentage of receivables to account for bad debt expenses is not allowed for calculation of income tax by the IRS. Direct write-off of noncollectable debts is the method required by the IRS when calculating income for tax purposes. Direct write-off requires the actual amount of bad debts to be subtracted from accounts receivable when the determination is made that a debt is noncollectable. Direct write-off does not allow an estimation of bad debts for the annual reporting period"(Oster, 2014)

References:

Oster, K. (2014). Percentage of receivables vs. percentage of sales. Retrieved from http://smallbusiness.chron.com/percentage-receivables-vs-percentage-sales-15788.html



References: Oster, K. (2014). Percentage of receivables vs. percentage of sales. Retrieved from http://smallbusiness.chron.com/percentage-receivables-vs-percentage-sales-15788.html

You May Also Find These Documents Helpful

  • Satisfactory Essays

    Accounts receivable write-offs should be approved by an employee (manager or supervisor) who does not handle cash receipts. For when computing bad debts expense as a percent of sales, managers monitor and adjust the percent so it is not too high or too low.…

    • 297 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    Based on cause and effect relationship between sales, products and what customers are willing to purchase. For example, accuracy of cash and accrual basis. (n.d.) “If a business spent $20,000 to produce products intended for sale, the entire sum is recorded as a one-time expense under cash basis accounting once the cash exchanges hands; even if the products are sold piecemeal across eight subsequent months. In contrast, “accrual” basis accounting records the initial production as an exchange of cash for products intended for sale and then record their acquisition costs as expenses as each individual unit are sold and the deduction is made from their asset account”. This is an example of how revenue is earned where products are delivered and cash is received. If you're a large wholesale business and deal with inventory, the Internal Revenue Service generally requires that you be on the accrual basis. Additionally, it is clearer for businesses to show accountability for what is purchased or sold by calculating accounts payable, or receivables to track sales or…

    • 430 Words
    • 2 Pages
    Good Essays
  • Satisfactory Essays

    Summary: Tire City Case

    • 709 Words
    • 3 Pages

    could use turnover average ratio A/R to Avg Sales - look at Prof excel for example inventory as % of sales is not usually the case; should typicall use inventory turnover ratio (inv/COGS)…

    • 709 Words
    • 3 Pages
    Satisfactory Essays
  • Good Essays

    To compute inventory turnover, divide cost of goods sold by the average inventory for the period. To evaluate inventory turnover, compare the ratio over time. A sharp decline suggests the need for corrective action. Accounts Receivable Turnover. Accounts receivable turnover measures the ability to collect cash from customers. In general, the higher the ratio, the better. However, a receivable turnover that is too high may indicate that credit is too tight, and that may cause you to lose sales to good customers. To compute accounts receivable turnover, divide net sales by average net accounts receivable. The ratio tells how many times during the year average receivables were turned into cash. Days Sales in Receivables. Businesses must convert accounts receivable to cash. All else being equal, the lower the receivable balance, the better the cash flow.…

    • 464 Words
    • 2 Pages
    Good Essays
  • Satisfactory Essays

    accounting

    • 496 Words
    • 2 Pages

    11. Job-order costing- normal costing; 12. Budgeted indirect costs. Chapter 4 Required: (4-18) (4-22), (4-30), (4-40). Case Required: Wheeled...…

    • 496 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    Accounting Theory

    • 827 Words
    • 4 Pages

    Paragraph 68 and 69 refer to the customer’s credit risk and the initial recognition of the receivables. According to paragraph 68, an entity shall account for receivable in accordance with IFRS 9 and for the effect of a customer’s credit risk on a contract asset. The credit risk is the risk that company will be unable to collect from the customer the considerations that were entitled in the contract. The difference between the measurement of receivable with IFRS 9 and corresponding amount of revenue recognized should be presented in profit or loss as a separate line item adjacent to the revenue line item. Furthermore, an entity shall present any impairment of the receivable in profit or loss as a separate line item adjacent to the revenue line item if it does not have any significant financing component. The main reason for this proposed requirement in the draft is that a company should recognize revenue that is expected to receive in consideration for the transfer of promised goods or services. This requirement takes into account the uncertainty about the collectability of the…

    • 827 Words
    • 4 Pages
    Good Essays
  • Good Essays

    Accounting

    • 802 Words
    • 4 Pages

    If a problem is discovered during the budgeting process the manager will be able to create a different plan, which will allow them to avoid the problem.…

    • 802 Words
    • 4 Pages
    Good Essays
  • Satisfactory Essays

    Accounting

    • 350 Words
    • 2 Pages

    - In this case, En, Razi get the approveal from En.Ghani, a Managing Director, then he passes the PO to the Purchasing clerk, Cik Anne for sorting and disputing. En. Razi not mention any copy of PO being sent to vendor, Recieving Department and AP.…

    • 350 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    Final Exam

    • 1129 Words
    • 5 Pages

    Explanation: Intangible assets should be organized into its own distinct group on the balance sheet.…

    • 1129 Words
    • 5 Pages
    Powerful Essays
  • Good Essays

    Solution Chapter 18

    • 9466 Words
    • 38 Pages

    Huish could recognize revenue at the point of sale based upon the time of shipment because the books are sold f.o.b. shipping point. Because of the return policy one might argue in favor of the cash collection basis. Because the returns can be estimated, one could argue for shipping point less estimated returns.…

    • 9466 Words
    • 38 Pages
    Good Essays
  • Good Essays

    accounting

    • 664 Words
    • 2 Pages

    Accounting is the recording, measurement, and interpretation of financial information (Business 286). This financial information is used to evaluate the organization’s operations. To carry out these interpretations of financial information a public or private accountant is able to do this. To become a public accountant you must earn your CPA (certified public accountant) by passing a test and means you are certified by the state in which you provide accounting services where you reside. This means that you are, as a certified public accountant, able to express, officially, an unbiased opinion regarding the accuracy of the client’s financial statements (Business 286). This ranges from preparation of financial records to tax returns to complex audits of corporation financial records. You also have to continue taking accounting courses to keep your certificate. Private accountants can also be CPAs and may become certified management accountants (CMAs). To earn your CMA you must pass a rigorous test given by Institute of Management Accountants.…

    • 664 Words
    • 2 Pages
    Good Essays
  • Satisfactory Essays

    Accounting

    • 253 Words
    • 2 Pages

    Big Bear Power is a public utility with a strong financial position for past several years. The company is in compliance with all its debt covenants because of its positive cash flow. Big Bear leased combustion turbine from Goliath Co. The lease term is non-cancelable for ten years. The lease was signed on December 15, 2004, but the lessee’s right to use the turbine starts on January 1, 2005.…

    • 253 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Accounting

    • 901 Words
    • 4 Pages

    The course is designed to provide students with concepts related to analyzing, designing, using, improving and controlling of effective accounting information systems, application to computers.…

    • 901 Words
    • 4 Pages
    Satisfactory Essays
  • Powerful Essays

    Accounting

    • 18566 Words
    • 101 Pages

    of earnings reports is being eroded by earnings management. Arthur Levitt, Jr., chairman of the Securities…

    • 18566 Words
    • 101 Pages
    Powerful Essays
  • Satisfactory Essays

    Accounting

    • 2682 Words
    • 11 Pages

    Aaron Dodwell Llandrillo College Rhos on Sea Abbi Farebrother Abi Groom Llandudno Adam McKenzie-Williams LJMU Adii Roberts NEWI Wrexham…

    • 2682 Words
    • 11 Pages
    Satisfactory Essays