Accounting Question 11: Point When Using The Allowance Metho

Accountingquestion 11 Pointwhen Using The Allowance Method Of Accoun

When using the allowance method of accounting for uncollectible accounts, the entry to write off Harold's uncollectible account is a debit to allowance for doubtful accounts and a credit to accounts receivable – Harold.

The person who borrows money and signs a promissory note is called the payee.

Sellers allow customers to use credit cards ______. to avoid having to evaluate a customer's credit standing for each sale, to lessen the risk of extending credit to customers who cannot pay, to speed up receipt of cash from the credit sale, all of the options are reasons for credit card use.

The allowance method based on the idea that a given percent of a company's credit sales for the period are uncollectible is _____. the percentage of sales method, the percent of accounts receivable method, the aging of accounts receivable method, the direct write-off method.

Teller purchased merchandise from All-Com on October 17 of the current year, and All-Com accepted Teller's $4,800, 90-day, 10% note. What entry should All-Com make on December 31 to record the accrued interest on the note? debit interest receivable $20; credit interest revenue $20.

TechnoComm's customer, RDA, paid off an $8,300 balance on its account receivable. TechnoComm should record the transaction as a debit to accounts receivable – RDA and a credit to cash.

A company receives a 10%, 90-day note for $1,500. The total interest due on the maturity date is _____. $37.50.

A company ages its accounts receivables to determine its end of period adjustment for bad debts. At the end of the current year, management estimated that $15,750 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the allowance for doubtful accounts had a debit balance of $175. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense? Bad debts expense $15,575; Allowance for doubtful accounts $15,575.

A company had net sales of $600,000, total sales of $750,000, and an average accounts receivable of $75,000. Its accounts receivable turnover equals _______. 8.00.

The accounting principle that requires financial statements (including notes) to report all relevant information about the operations and financial condition of a company is called _____. full disclosure.

Paper For Above instruction

Accounting for uncollectible accounts and the application of the allowance method is a critical aspect of financial accounting, ensuring that a company's financial statements accurately reflect the realizable value of accounts receivable. The allowance method involves estimating uncollectible accounts based on historical data and applying necessary journal entries to reflect the probable losses from uncollectible accounts. This method complies with the matching principle of accounting, which stipulates that expenses should be recognized in the same period as the related revenues.

One of the essential journal entries in the allowance method occurs during the write-off of an uncollectible account, such as Harold's. When Harold's account is deemed uncollectible, the company debits Allowance for Doubtful Accounts and credits Accounts Receivable—Harold. This transaction does not affect total assets directly but reduces both accounts by the amount of the write-off, aligning with the estimations made previously and maintaining accurate receivables records.

The process of estimating uncollectible accounts can be conducted through various methods, with the percentage of sales method being prevalent. This approach applies a historical percentage to current period sales to determine bad debt expense, emphasizing the matching of expenses with revenues. Alternatively, the percent of accounts receivable method focuses on aging the receivables, assigning different uncollectibility percentages based on the age of specific receivables. The choice between these methods depends on a company's accounting policies and the nature of its receivables.

Regarding promissory notes, entities like All-Com must accrue interest periodically to recognize the earnings from interest income. For instance, if All-Com accepts Teller's $4,800, 90-day, 10% note issued on October 17, the interest accrued by December 31 needs to be recorded. The calculation involves multiplying the principal by the rate and the fraction of the year that has passed. Specifically, the interest accrued is $20, calculated as ($4,800 × 10% × 75 days / 90 days). The journal entry on December 31 should debit Interest Receivable and credit Interest Revenue, capturing the accrued interest earned but not yet received.

Similarly, when a customer like RDA pays off their outstanding accounts receivable, the company records the receipt by debiting Cash and crediting Accounts Receivable. Such entries reflect the collection of previous outstanding balances and affect the company's cash flow statements. When the receivable is paid via a promissory note, the process involves recognizing the note receivable and subsequently accruing interest income as it is earned over time.

The calculation of interest for notes payable or receivable is straightforward: for a $1,500, 90-day, 10% note, the total interest due at maturity is $37.50, derived by multiplying the principal by the annual interest rate and the fraction of the year (90 / 360 days). This calculation aids in proper accrual of interest income and expense, following the accrual basis of accounting.

In the context of bad debts estimation, management estimates the uncollectible portion of accounts receivable based on aging analyses, contributing to accurate financial reporting. When prior to adjustment, the Allowance for Doubtful Accounts carries a debit balance, the adjusting entry must consider this starting point, adjusting the allowance to the new estimate. For example, if the estimated uncollectible amount is $15,750, the company increases Bad Debts Expense by the difference between this amount and the existing debit balance, ensuring the Allowance for Doubtful Accounts correctly reflects anticipated uncollectible accounts.

The accounts receivable turnover ratio measures how many times a company collects its average receivables during a period. Calculated by dividing Net Sales by Average Accounts Receivable, a higher ratio indicates efficient collection practices. Using the provided numbers, the ratio is 8.00, suggesting an effective receivables management system that promotes cash flow and liquidity.

Finally, the full disclosure principle is a fundamental concept in accounting that mandates companies to reveal all material and pertinent information within their financial statements and accompanying notes. Transparency ensures stakeholders can make informed decisions based on comprehensive data, fostering trust and compliance with regulatory standards. Full disclosure encompasses both quantitative and qualitative information that could influence the understanding of a company's financial position.

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