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What is the difference between direct write-off method and allowance method? Direct write-off method, a company...

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

Solutions

Expert Solution

Solution :

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

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

Journal Entries
Date Particulars Debit Credit
1-Jan Bad debts expense Dr $1,000.00
        To Allowance for doubtful accounts $1,000.00
(Being bad debts expense recorded)
Allowance for doubtful Accounts
Particulars Debit Particulars Credit
To ending balance $1,170.00 By Beginning balance $170.00
By Bad debts expense $1,000.00
Total $1,170.00 Total $1,170.00
Journal Entries
Date Particulars Debit Credit
1-Mar Accounts receivables $100.00
        To Sales revenue $100.00
(To record sales)
31-Mar Allowance for doubtful accounts Dr $100.00
        To Accounts receivables $100.00
(To write off accounts receivables)
5-Apr Accounts receivables Dr $100.00
        To Allowance for doubtful accounts $100.00
(To reinstate customer account)
5-Apr Cash Dr $100.00
        To Accounts receivables $100.00
(To record collection from customer)

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