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In: Accounting

CHAPTER 7 How should restricted cash funds be reported on the balance sheet? CHAPTER 8 Discuss...

CHAPTER 7

How should restricted cash funds be reported on the balance sheet?

CHAPTER 8

Discuss the three (3) essential features of the allowance method of accounting for bad debts. (Hint - (1) How are bad debts estimated (2) How are estimated bad debts recorded in the financial statements - (journal entry) and (3) when and how (journal entry) are bad debts written off?)

Expert Solution

A.) Reporting of restricted cash on financial statements
A company's balance sheet must include all assets and liabilities, including cash. Restricted cash is reported separately from cash and cash equivalents on a company's balance sheet, and the reason the cash is restricted is typically revealed in the financial statement's accompanying notes.

Restricted cash may be classified as a current or non-current asset depending on how long it's expected to remain restricted. If the cash in question is expected to be used within one year of the balance sheet date, the cash should be classified as a current asset. However, if it is anticipated that the cash will remain unavailable for use for more than a year, then it should be classified as a non-current asset.

B.) The three essential features of the allowance method of accounting for bad debts:-

(i) Estimating Bad Debts:-

Estimating uncollectible accounts generally use two basic methods to estimate uncollectible accounts for a period. The first method—percentage-of-sales method—focuses on the income statement and the relationship of uncollectible accounts to sales.

The second method—percentage-of-receivables method—focuses on the balance sheet and the relationship of the allowance for uncollectible accounts to accounts receivable.

(ii) Journal entry for estimated bad debts recorded in the financial statements:-

Bad Debt Expense A/c ( Dr) XXXXX

To Allowance for Doubtful Accounts ( Cr) XXXXX

(iii) when and how (journal entry) are bad debts written off:-

Bad debts are written off at the time, when the amount receivable from accounts receivale become bad ( not recoveral at all).

Journal Entry for Bad debts written off:-

a.) Where we have already created provision for estimated bad debts:-

Allowance for Doubtful Accounts ( Dr ) XXXXX

To Accounts Receivable ( Cr) XXXXX

b.) Where we have not created provision for estimated bad debts:-

Bad Debt Expense ( Dr ) XXXXX

To Accounts Receivable ( Cr ) XXXXX

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