COMMERCE 1AA3 Study Guide - Final Guide: Credit Cycle, Current Liability, Deferral
12 Dec 2016
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Customers that do not have cash available can buy on credit. Sales and profits increase, as money sources increase. This cost is called (cid:498)uncollectible- account expense(cid:499), (cid:498)doubtful-account expense(cid:499), or (cid:498)bad debt expense(cid:499) Uncollectible-account expense: is the cost to the seller of extending credit and arises from the failure to collect from credit customers. This is also called bad debt expense or doubtful account expense and is reported on the income statement. Bad debts result from credit customers who will not pay the business the amounts they owe, regardless of collection efforts. Direct write-off method: assumes all a/r are collectible. Recognizes bad debt expense when a/r are determined to be uncollectible (i. e. , when a/r are written off: bad debt expense. Allowance method: recognizes bad debt expense when a/r are estimated to be uncollectible. xx accounts) The amount of a/r that will be uncollectible is called (allowance for uncollectible. Reports a/r at net realizable value as: a/r allowance for uncollectible accounts.
