Direct Write-off Method Example: Accounts Receivable balance is $10,000 as of December 31. Customer Ledger: Sue 3,000 Fred 700 Mary 2,300 Bob 4.000 Total 10,000 Fred goes bankrupt in January and will not pay. Use the Direct Write-Off Method. GENERAL JOURNAL 1 2 Date Description Date Description 1 2 Net Realizable Value of Receivables on BS: 9,000 Date Allowance Method The balance of Accounts Receivable is presented on the Balance Sheet with the Allowance account. Accounts Receivable less the Allowance is calculated and presented on the face of the balance sheet. It is what we really expect to collect and is called the Net Realizable Value. Example: In the year 2019 Accounts Receivable balance is 10,000. We estimate bad debt expense of 1,000. Use the Allowance Method. GENERAL JOURNAL In the year 2020 we find out that Fred isn't going to pay. GENERAL JOURNAL Description Post ref 1 2 Net Realizable Value of Receivables on BS is still $9,000 Debit Post ref Post ref Page Debit Credit Debit Page Credit Page 1 2 Credit 1 27 2 1 2

Direct Write-off Method Example: Accounts Receivable balance is $10,000 as of December 31. Customer Ledger: Sue 3,000 Fred 700 Mary 2,300 Bob 4.000 Total 10,000 Fred goes bankrupt in January and will not pay. Use the Direct Write-Off Method. GENERAL JOURNAL 1 2 Date Description Date Description 1 2 Net Realizable Value of Receivables on BS: 9,000 Date Allowance Method The balance of Accounts Receivable is presented on the Balance Sheet with the Allowance account. Accounts Receivable less the Allowance is calculated and presented on the face of the balance sheet. It is what we really expect to collect and is called the Net Realizable Value. Example: In the year 2019 Accounts Receivable balance is 10,000. We estimate bad debt expense of 1,000. Use the Allowance Method. GENERAL JOURNAL In the year 2020 we find out that Fred isn't going to pay. GENERAL JOURNAL Description Post ref 1 2 Net Realizable Value of Receivables on BS is still $9,000 Debit Post ref Post ref Page Debit Credit Debit Page Credit Page 1 2 Credit 1 27 2 1 2

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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