(a)
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
Direct write-off method
This method does not make allowance or estimation for uncollectible accounts, instead this method directly write-off the actual uncollectible accounts by debiting bad debt expense and by crediting accounts receivable. Under this method, accounts would be written off only when the receivables from a customer remain uncollectible.
The amount to be reported as bad debt expense, if Company M uses the direct write-off method of accounting for
(b)
The amount of bad debts expense would be recorded by Company M, under allowance method.
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 doubtful account.
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.
(c)
The amount of bad debt expense that would be recorded by Company M.
(d)
To describe: The weakness of reporting bad debt expense under direct write-off method.
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Chapter 8 Solutions
Financial Accounting
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