ACC 400 Week 2 E-text Individual Assignments

Week 2: E-text Individual Assignments 
Financial Accounting: Tools for Business Decision Making, 4th edition
 
Chapter 8: Question 3
 
            3. What are the essential features of the allowancemethod of accounting for bad debts?
 
            According to Kimmel, Weygandt, & Kieso (2007), theallowance method of accounting has three essential features:
 

  1. Estimated uncollectible accounts receivable are matched against revenues within the same accounting period in which they are recorded.

  2. Estimated uncollectibles are debited to Bad Debts Expense and credited to Allowance for Doubtful Accounts via an adjusting entry at the end of each period. 

  3. Actual uncollectibles are debited to Allowance for Doubtful Accounts and credited to Accounts Receivable at the time the specific account is written off as uncollectible.


 
Chapter 8: Question 4
 
            4. 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.
 
            Cash realizable value does not change/decrease because the decrease in cash realizable value is when estimated uncollectibles are recognized/accounted for in an adjusting entry. Write-off of uncollectible accounts reduces accounts receivable and allowance for doubtful accounts by an equal amount.
 
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