Question

Explain the impact of uncollected receivables between direct write-off method and allowance method  .

1. definition of two methods
2. Comparison between them
3. Influence about the uncollected receivables

Sold on credit: A: +account rece=L+OE：+sales revenue

Can’t get acc rece in cash in the future----uncollected receivables

4. Transaction provided

Answer 1

uncollected receivables

Uncollected Receivables means any of the Receivables that remain uncollected 180 days following the Closing Date.Uncollected Receivables means those Agencourt Accounts Receivable reflected on the Closing Balance Sheet that are not collected prior to the Determination Date.

impact of uncollected receivables

The amount of accounts receivable compared to inventory, cash and other assets can skew the accounts on a balance sheet in favor of illiquid assets.The ratio of outstanding receivables to cash received in a period can impact the top and bottom lines of a cash-flow statement.

A/R is an asset, and as such, it appears on the balance sheet.When accounts receivable go down, this is considered a source of cash on the company's cash flow statement, and as such, it increases the company's working capital (defined as current assets minus current liabilities).

direct write-off method

direct write-off method definition. A method for recognizing bad debts expense arising from credit sales. Under this method there is no allowance account. Rather, an account receivable is written-off directly to expense only after the account is determined to be uncollectible.

Direct Write-off Method. Generally accepted accounting principles (GAAP) require that companies use the allowance method when preparing financial statements. In the direct write-off method, a company will not use an allowance account to reduce its Accounts Receivable.

impact direct write-off method

THE DIRECT WRITE OFF METHOD. Under the direct write off method, when a small business determines an invoice is uncollectible they can debit the Bad Debts Expense account and credit Accounts Receivable immediately. This eliminates the revenue recorded as well as the outstanding balance owed to the business in the books.

allowance method  

The financial accounting term allowance method refers to an uncollectible accounts receivable process that records an estimate of bad debt expense in the same accounting period as the sale. The allowance method is used to adjust accounts receivable appearing on the balance sheet.