Question

What is the theoretical justification for the allowance method of accounting for bad debt?


What is the theoretical justification for the allowance method of accounting for bad debt?
Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

--The theoretical justification for the allowance method for bad debts is that it follows the "matching concept" of accounting.

--matching concept states that the 'costs incurred' are to be matched with the revenues earned for and because of those cost.

--Under Allowance method, Bad Debt Expenses are calculated based on sales for that period or accounts receivables at that period year's end.

--hence, expense (bad debt expense) gets matched by the revenues earned.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Under the allowance method of accounting for bad debts, the company estimates the amount of bad...
Under the allowance method of accounting for bad debts, the company estimates the amount of bad debts before those debts actually occur. True/False
Accounting Discussion Corporations are required to use the allowance method when accounting for bad debts. This...
Accounting Discussion Corporations are required to use the allowance method when accounting for bad debts. This necessitates the following entry at the start of the fiscal year: Uncollectible accounts expense    Allowance for uncollectible accounts Explain the benefits gained from this entry in terms of Balance Sheet and Income Statement presentation for the corporation and its investors.
Johnson Company uses the allowance method to account for uncollectible accounts receivable. Bad debt expense is...
Johnson Company uses the allowance method to account for uncollectible accounts receivable. Bad debt expense is established as a percentage of credit sales. For 2018, net credit sales totaled $6,400,000, and the estimated bad debt percentage is 1.40%. The allowance for uncollectible accounts had a credit balance of $61,000 at the beginning of 2018 and $49,500, after adjusting entries, at the end of 2018. Required: 1. What is bad debt expense for 2018 as a percent of net credit sales?...
Johnson Company uses the allowance method to account for uncollectible accounts receivable. Bad debt expense is...
Johnson Company uses the allowance method to account for uncollectible accounts receivable. Bad debt expense is established as a percentage of credit sales. For 2018, net credit sales totaled $6,500,000, and the estimated bad debt percentage is 1.50%. The allowance for uncollectible accounts had a credit balance of $62,000 at the beginning of 2018 and $50,000, after adjusting entries, at the end of 2018. Required: 1. What is bad debt expense for 2018 as a percent of net credit sales?...
When using the allowance method, what are the effects on the accounting equation when a company...
When using the allowance method, what are the effects on the accounting equation when a company writes off a bad debt? a.Assets and stockholders' equity increase. b.Assets and stockholders' equity decrease. c.There is no effect on overall assets or equity. d.Assets increase and stockholders' equity decreases.
Earl Company uses the accrual method of accounting. Here is a reconciliation of Earl's allowance for...
Earl Company uses the accrual method of accounting. Here is a reconciliation of Earl's allowance for bad debts for the current year. Beginning allowance for bad debts 1,100,000 Actual write-offs of accounts receivable during the year (700,000) Addition to allowance 900,000 Ending allowance for bad debts $1,300,000 Which of the following statements is true? Select one: a. Bad debt expense per books is $1,300,000, and the income tax deduction for bad debts is $900,000. b. Bad debt expense per books...
The balance in Allowance for Doubtful Accounts is important to the calculation of bad debt when...
The balance in Allowance for Doubtful Accounts is important to the calculation of bad debt when bad debt is calculated A. as a % of credit sales B. as a % of accounts receivable that will not be collected C. using direct write-off method D. None of the above Please explain. I am confused by the wording of this question.
Waterway Industries uses the allowance method of accounting for bad debts. The company produced the following...
Waterway Industries uses the allowance method of accounting for bad debts. The company produced the following aging of the accounts receivable at year-end. (a) Calculate the total estimated bad debts based on the information below. Number of Days Outstanding Total 0–30 31–60 61–90 91–120 Over 120 Accounts receivable $506,000 $333,000 $93,000 $47,000 $20,000 $13,000 % uncollectible 1% 4% 5% 8% 11% Estimated bad debts $enter estimated bad debts in dollars $enter estimated bad debts in dollars $enter estimated bad debts...
3. Bell Inc. reports bad debt expense using the allowance method. For tax purposes the direct...
3. Bell Inc. reports bad debt expense using the allowance method. For tax purposes the direct write-off method is used. At the end of the current year, Bell has accounts receivable and an allowance for uncollectible accounts of $10,000,000 and $500,000, respectively, and taxable income of $50,000,000. At the beginning of the current year, Bell reported a deferred tax asset of $210,000 related to the difference in reporting bad debts, its only temporary difference. The enacted tax rate is 40%...
USS Navy, Inc. uses the allowance method to account for bad debts.  USS Navy had the...
USS Navy, Inc. uses the allowance method to account for bad debts.  USS Navy had the following information after all entries except bad debt expense for the year. Debit balance in Accounts Receivable, $6,500 Credit Sales of $24,000 Credit balance in Allowance for Doubtful Accounts, $12 Navy estimates 6% of outstanding receivables will be uncollectible. 1)How much should be recorded as bad debt expense? 2) What is the net realizable value of accounts receivable?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT