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Concept explainers
1. When using the Allowance method to account for uncollectible accounts, between the income statement approach and the
2. Can the Allowance account be used to misinterpret a company's financial results? How so? Provide at least one example of how a company might accomplish this.
3. Suppose a company accepts a Note Receivable in lieu of an
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Allowance Method
Allowance method is used when the good are sold or providing services on credit, and the calculated amount is reported on company’s financial statement. Under this method, company record adjustment entry at the end of accounting period for the amount of losses it anticipates as the result of extending the credit to its customer.
The allowance method can be applied in one or both of following ways:
- Focusing on bad debts expenses that is needed in income statement.
- Focusing on the balance needed in allowance for doubtful account which is reported on the balance sheet.
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- Which of the following is not an accurate description of the Allowance for Doubtful Accounts? Multiple Choice The account is a contra account. The account is a liability. The amount of the Allowance for Doubtful Accounts decreases the net realizable value of a company's receivables. The account is increased by an estimate of uncollectible accounts expense.arrow_forwardAt the time companies write off accounts receivable, there is no effect on net income. true or falsearrow_forwardWhy do companies find it convenient to alter allowance for doubtful accounts to manage earnings?arrow_forward
- Which of the following statements is false? a) An entry to write off an uncollectible account does not change the net realizable value of accounts receivable. b)The issuer ofa note records a receivable on their books on the date the note is issued. c)Using the allowance method of accounting for accounts receivables follows the matching concept. d)Recording an accrued asset for interest increases stockholders' equity.arrow_forwardReceivables are valued and reported in the statement of financial position at their gross amount less any sales returns and allowances and less any cash discounts. True or Falsearrow_forward
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