Accounting

Chapter 8 – 3, 4 & E 8-5 and Chapter 9 – E 9-9 Questions

University of Phoenix

ACC 400

Chapter 8 – Question 3

1. What are the essential features of the allowance method of accounting for bad debts?

The essential features of the allowance method of accounting for the bad debts according to Kimmel, Weygandt, & Kieso are:

• Companies estimate uncollectible accounts receivable and match them against revenues in the same accounting period in which the revenues are recorded.

• Companies record estimated uncollectible as an increase (a debit) to Bad Debts Expense and an increase (a credit) to Allowance for Doubtful Accounts (a contra asset account) through an adjusting entry at the end of each period.

• Companies debit actual uncollectible to Allowance for Doubtful Accounts and credit them to Accounts Receivable at the time the specific account is written off a uncollectible.

Chapter 8 – Question 4

1. Lauren Anderson cannot understand why the cash realizable value does not decrease when an uncollectible account is written off under the allowance method. Clarify this point for Lauren.

• According to Kimmel, Weygandt, & Kieso, the cash realizable value does not decrease because the decrease in value is estimated uncollectibles which in the adjusting entry it is accounted. Reduces accounts receivable and allowance for doubtful accounts by an equal amount is written off as uncollectible accounts

Chapter 8 – Question E8-5

|Balance, March 31 | | | | | |

|Month of Sale |2007 |2006 | |Age of Accounts |Estimated Percentage |

| | | | | |Uncollectible |

|March...