Accounting for uncollectible accounts using the allowance and direct write-off methods, and reporting receivables on the balance sheet
On August 31, 2012, Daisy Floral Supply had a $155,000 debit balance in Accounts receivable and a $6,200 credit balance in Allowance for uncollectible accounts. During September, Daisy made
- sales on account: $590,000.
- collections on account: $627,000.
- write-offs of uncollectible receivables: $7,000.
1. Journalize all September entries using the allowance method. Uncollectible account expense was estimated at 3% of credit sales. Show all September activity in Accounts receivable, Allowance for uncollectible accounts, and Uncollectible account expense (post to these T-accounts).
2. Using the same facts, assume instead that Daisy used the direct write-off method to account for uncollectible receivables. Journalize all September entries using the direct write-off method. Post to Accounts receivable and Uncollectible account expense and show their balances at September 30, 2012.
3. What amount of uncollectible account expense would Daisy report on its September income statement under each of the two methods? Which amount better matches expense with revenue? Give your reason.
4. What amount of net accounts receivable would Daisy report on its September 30, 2012 balance sheet under each of the two methods? Which amount is more realistic? Give your reason.
The expert examines accounting for Uncollectible amounts.