Chapter 9, Problem 8DQ

To determine

Accounts Receivable:

The accounts receivable depicts the amount to be realized from the customers to whom the goods have been sold on credit by the business. Accounts receivable is an asset for the company as its collection increases the value of cash or amounts in bank and ultimately increases the assets part of the balance sheet. Also, sometimes a part of accounts receivable is termed to be bad debts on account of anticipation that the amount shall not be recovered from the customers in future and are being written off as loss.

Direct Write-off Method of Accounting:

In direct write-off method the bad debts are charged to expenses being incurred during the period in which specific invoices were distinctly regarded as bad debts. Also, under this method the recorded sales are not reduced but only the bad debts expenses are increased. This method is viable only for the values being written off which do not affect the books of accounts integrally since adopting such method will not bring about any change in the financial statements of the company and ultimately will not help the end-users in analyzing it and neither in decision-making on the basis of financial statements.

Also, another possible avenue in this case is to create a specific provision for bad debts for the period and account for the bad debts against the revenues earned during the period.

To explain: Method utilized in accounting for accounts receivable and realizable value of receivable accounts in the balance sheet of G Company.