Chapter 8, Problem 8.27AP

(1)

To determine

Accounts receivable

Accounts receivable refers to the amounts to be received within a short period from customers upon the sale of goods and services on account. In other words, accounts receivable are amounts customers owe to the business. Accounts receivable is an asset of a business.

Bad debt expense:

Bad debt expense is an expense account. The amounts of loss incurred from extending credit to the customers are recorded as bad debt expense. In other words, the estimated uncollectible accounts receivable are known as bad debt expense.

Allowance method:

It is a method for accounting bad debt expense, where uncollectible accounts receivables are estimated and recorded at the end of particular period. Under this method, bad debts expenses are estimated and recorded prior to the occurrence of actual bad debt, in compliance with matching principle by using the allowance for bad debt account.

To journalize: The September month transactions using allowance method.

(2)

To determine

Direct write-off method:

Under this method, accounts would be written off only when it is determined that the receivables from a customer remain uncollectible.

Write-off:

Write-off refers to deduction of a certain amount from accounts receivable, when it becomes uncollectible.

To journalize: The September month transactions using direct-write off method.

(3)

To determine

To Show: The amount of bad debts expense that will be reported on the income statement under each of the two methods, and describe which amount best matches expenses with revenue.

(4)

To determine

To identify: The amount that would be reported as net accounts receivable on the balance sheet under each of the two methods and explain which amount is more accurate.