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Acc 541 Week 2 Dq

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Case 8-4 discusses uncollectible accounts. It talks about the Anth Company.
Read the case and answer the following. a. What are the deficiencies of the direct write-off method?
b. What are the two basic allowance methods used to estimate bad debts?

A. Under direct write-off method, a company does not anticipate bad debt expense. It waits until an account is written off as uncollectible before recording the bad debt. Because of this, accounts receivable will be reported on the balance sheet at their full amounts, which shows the notion that all of the accounts receivable will turn into cash. This causes a company’s assets and profits to be overstated. B. Estimating Bad Debts on Sales – This consists of estimating bad debts as a percentage of sales, consistent with the matching concept in the bad debt expense recorded in the same time period as the associated revenue (Net credit sales X Bad debt percentage = Bad debt expense).

Estimating Bad Debts Based on Receivables – This estimate is based on receivables that could use an aging or a single calculation depending on total receivables (Accounts receivables balance X Estimated percent of uncollectible = Desired ending balance of Allowance for Doubtful Accounts).

Reference:
Accounting Coach (2014) Why isn’t the direct write off method of uncollectible accounts receivable the preferred method? Retrieved from http://www.accountingcoach.com/blog/direct-write-off-accounts-receivables

What is the current practice and theory on the allocation of fixed asset cost?
The current practice of allocating a fixed asset cost is through depreciation because it benefits future periods. It must be allocated to the periods it benefits. As the asset is depreciated, the cost is expensed.
In theory, balance sheet measurements should reflect the future service potential of assets at a moment in time. Costs

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