Week 1 DQ 1, 2
Business owners know that some customers who receive credit will never pay their account balances. These uncollectible accounts are also called bad debts. Companies use two methods to account for bad debts: the direct write-off method and the allowance method.
Direct write-off method/ for tax purposes, companies must use the direct write-off method, under which bad debts are recognized only after the company is certain the debt will not be paid.
Allowance method/ Under the allowance method, an adjustment is made at the end of each accounting period to estimate bad debts based on the business activity from that accounting period.
The adjusting entry to estimate the expected value of bad debts does not reduce accounts receivable directly. Accounts receivable is a control account that must have the same balance as the combined balance of every individual account in the accounts receivable subsidiary ledger (Weygandt, Kimmel, & Kieso, 2014). The direct write-off method allows more room for manipulation than other methods. Although a company is supposed to write off an account as soon as it determines the account to be uncollectable, it uses its judgment to decide when that moment arrives. The best method is going to be the allowance method
Percentage of sales/ General: Method of estimating cash requirements by expressing revenues and expenses as percentages of sales, and using these percentages to construct a pro forma income statement.
Percentage of receivables/ Accounts receivable are informal credit arrangements supported by an invoice and normally are due in 30 to 60 days after the sale. Management will decided depending on which area they are interested in such as: percentage of sales will be income statement sheet and percentage of receivable will be balance sheet
W1DQ2: Provide at least three examples of intangible assets. What is the difference between intangible assets and plant (tangible) assets in...
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