What is the difference between direct write-off method and allowance method? Dir

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What is the difference between direct write-off method and allowance method? Direct write-off method, a company does not anticipate bad debt expense. The allowance method is preferred over the direct write-off method because the accounts receivable will be presented on the balance sheet with a reduction called the allowance for doubtful accounts. Jan 1. At the beginning of the year, AA prepared the Aging of Accounts Receivable Schedule. Complete the table. Customer Amount Current Number of Days Past Due (Not Yet Due) 1~30 30~60 60~90 CC $ 10,000 $ 10,000 DD 1,000 $ 1,000 EE 2,000 $ 2,000 FF 5,000 GG 3,000 $ 3,000 Total $ 21,000 $ 1,000 $ 10,000 $ 2,000 $ 3,000 Percentage considered uncollectible 2% 5% 10% 15% Estimated Uncollectible Accounts Jan 1. AA had previous balance of Allowance for Doubtful Accounts ($170). How much do they have to add to match the estimated uncollectible accounts that you calculated above? Jan 1. Please complete the journal entry to add the amount that you calculated above to the allowance for D.A. Date Explanation Debit Credit Jan 1. Post the allowance for doubtful accounts entries in T-account, and show the balance. Don't forget the previous balance Allowance for Doubtful Account Mar. 1 Company AA sold rooms to BB on account ($100). Journalyze this transaction. Date Explanation Debit Credit Mar. 31 Company AA found that the account receivable for BB was uncollectible Journalyze this transaction based on allowance method Date Explanation Debit Credit April 5. BB notified that they would pay cash for their debt. Journalyze this transaction. Date Explanation Debit Credit April 5. AA received cash and cleared the receivable from BB Journalyze this tranxaction. Date Explanation Debit   Credit What is the difference between direct write-off method and allowance method? Direct write-off method, a company does not anticipate bad debt expense. The allowance method is preferred over the direct write-off method because the accounts receivable will be presented on the balance sheet with a reduction called the allowance for doubtful accounts. Jan 1. At the beginning of the year, AA prepared the Aging of Accounts Receivable Schedule. Complete the table. Customer Amount Current Number of Days Past Due (Not Yet Due) 1~30 30~60 60~90 CC $ 10,000 $ 10,000 DD 1,000 $ 1,000 EE 2,000 $ 2,000 FF 5,000 GG 3,000 $ 3,000 Total $ 21,000 $ 1,000 $ 10,000 $ 2,000 $ 3,000 Percentage considered uncollectible 2% 5% 10% 15% Estimated Uncollectible Accounts Jan 1. AA had previous balance of Allowance for Doubtful Accounts ($170). How much do they have to add to match the estimated uncollectible accounts that you calculated above? Jan 1. Please complete the journal entry to add the amount that you calculated above to the allowance for D.A. Date Explanation Debit Credit Jan 1. Post the allowance for doubtful accounts entries in T-account, and show the balance. Don't forget the previous balance Allowance for Doubtful Account Mar. 1 Company AA sold rooms to BB on account ($100). Journalyze this transaction. Date Explanation Debit Credit Mar. 31 Company AA found that the account receivable for BB was uncollectible Journalyze this transaction based on allowance method Date Explanation Debit Credit April 5. BB notified that they would pay cash for their debt. Journalyze this transaction. Date Explanation Debit Credit April 5. AA received cash and cleared the receivable from BB Journalyze this tranxaction. Date Explanation Debit   Credit

Explanation / Answer

Solution :

Estimated uncollectible accounts = $1,170

Amount to be added to match the estimated uncollectible accounts = Estimated uncollectible accounts - Previous balance of allowance for doubtful accounts = $1,170 - $170 = $1,000

Computation of Allowance for Uncollectible Accounts Ageing Accounts Receivables % Uncollectible Required Allowance Not yet due $1,000.00 2% $20.00 1-30 days $10,000.00 5% $500.00 30-60 days $2,000.00 10% $200.00 60-90 days $3,000.00 15% $450.00 Total $16,000.00 $1,170.00

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