1. When using the Allowance method to account for uncollectible accounts, between the income statement approach and the balance sheet approach, which is more accurate in your opinion? Fully support your answer with sound research. 2. Can the Allowance account be used to misinterpret a company's financial results? How so? Provide at least one example of how a company might accomplish this. 3. Suppose a company accepts a Note Receivable in lieu of an Accounts Receivable. How would the company record this transaction? Provide an example and related journal entry. (You may not use the examples from the textbook.)
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
1. When using the Allowance method to account for uncollectible accounts, between the income statement approach and the
2. Can the Allowance account be used to misinterpret a company's financial results? How so? Provide at least one example of how a company might accomplish this.
3. Suppose a company accepts a Note Receivable in lieu of an
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Allowance Method
Allowance method is used when the good are sold or providing services on credit, and the calculated amount is reported on company’s financial statement. Under this method, company record adjustment entry at the end of accounting period for the amount of losses it anticipates as the result of extending the credit to its customer.
The allowance method can be applied in one or both of following ways:
- Focusing on bad debts expenses that is needed in income statement.
- Focusing on the balance needed in allowance for doubtful account which is reported on the balance sheet.
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