Chapter 9, Problem 2PSA

To determine

Concept Introduction:

Allowance method:

Under the Allowance method the estimated bad debts expenses are recorded using the Allowance for doubtful account and the actual bad debts written off using this account. Allowance for doubtful accounts represents the amount of expected bad debts or uncollectable accounts. This account is made as a provision for future bad debts.

Direct write off method:

Under the Direct write off method the actual bad debts are directly written of using the accounts receivable account.

Aging of receivable method:

Bad debts expense can be recognized with several methods. Aging of receivable method is one of those methods. In this method the receivables are categorized into different categories according to the age and percentage of uncollectible is determined for each age and bad debts are calculated using these percentages.

Percent of sales method:

Bad debts expense can be recognized with several methods. Percent of sales is one of those methods. Under this method the bad debts expense is calculated as a percentage of sales.

Requirement-1:

To prepare:

The Adjusting entries to record the bad debts under each of the given assumptions

To determine

Concept Introduction:

Allowance method:

Under the Allowance method the estimated bad debts expenses are recorded using the Allowance for doubtful account and the actual bad debts written off using this account. Allowance for doubtful accounts represents the amount of expected bad debts or uncollectable accounts. This account is made as a provision for future bad debts.

Direct write off method:

Under the Direct write off method the actual bad debts are directly written of using the accounts receivable account.

Aging of receivable method:

Bad debts expense can be recognized with several methods. Aging of receivable method is one of those methods. In this method the receivables are categorized into different categories according to the age and percentage of uncollectible is determined for each age and bad debts are calculated using these percentages.

Percent of sales method:

Bad debts expense can be recognized with several methods. Percent of sales is one of those methods. Under this method the bad debts expense is calculated as a percentage of sales.

Requirement-2:

To indicate:

The presentation of Accounts Receivable and Allowance for doubtful account on the balance sheet in the case of 1(a)

To determine

Concept Introduction:

Allowance method:

Under the Allowance method the estimated bad debts expenses are recorded using the Allowance for doubtful account and the actual bad debts written off using this account. Allowance for doubtful accounts represents the amount of expected bad debts or uncollectable accounts. This account is made as a provision for future bad debts.

Direct write off method:

Under the Direct write off method the actual bad debts are directly written of using the accounts receivable account.

Aging of receivable method:

Bad debts expense can be recognized with several methods. Aging of receivable method is one of those methods. In this method the receivables are categorized into different categories according to the age and percentage of uncollectible is determined for each age and bad debts are calculated using these percentages.

Percent of sales method:

Bad debts expense can be recognized with several methods. Percent of sales is one of those methods. Under this method the bad debts expense is calculated as a percentage of sales.

Requirement-3:

To indicate:

The presentation of Accounts Receivable and Allowance for doubtful account on the balance sheet in the case of 1(c)