Question: Accounting for uncollectible accounts using the allowance (percent-of-sales) and direct write-off methods and reporting receivables on the balance sheet On August 31, 2016, Rosebud Floral Supply had a $170,000 debit balance in Accounts Receivable and a $6,800 credit balance in Allowance for Bad Debts. During September, Rosebud made the following transactions:
• Sales on account, $550,000. Ignore Cost of Goods Sold.
• Collections on account, $584,000.
• Write-offs of uncollectible receivables, $8,000.
Requirements: 1. Journalize all September entries using the allowance method. Bad debts expense was estimated at 2% of credit sales. Show all September activity in Accounts Receivable, Allowance for Bad Debts, and Bad Debts Expense (post to these T-accounts).
2. Using the same facts, assume that Rosebud 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 Bad Debts Expense, and show their balances at November 30, 2016.
3. What amount of Bad Debts Expense would Rosebud 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 Rosebud report on its September 30, 2016, balance sheet under each of the two methods? Which amount is more realistic? Give your reason.