MBA课程会计学ChFinancialassets金融资产.ppt

62 62 When using the Income Statement Approach, the estimate at the end of the period is determined by taking current period sales and multiplying by an established bad debt percentage. The bad debt percentage is determined based on past history of the company and current economic trends. Also, the sales transactions included in this computation are typically only the credit sales. There are not any collection issues to consider for cash sales transactions. 62 62 The credit loss estimate is calculated as net credit sales times the estimated uncollectible percentage. 66 66 East Company has credit sales of sixty thousand dollars in the year two thousand and five. Management estimates that one percent of credit sales will eventually prove to be uncollectible. What is East Company’s adjusting entry for uncollectible accounts in two thousand and five? 67 67 East Company would debit Uncollectible Accounts Expense and credit Allowance for Doubtful Accounts for six hundred dollars, which is one percent of sixty thousand dollars in credit sales. Here is a summary of the allowance methods we just discussed. The focus of the Balance Sheet Approach is on valuing accounts receivable at net realizable value on the balance sheet. The focus of the Income Statement Method is on matching Uncollectible Accounts Expense with the related revenues. Both methods do a better job of matching and reporting accounts receivable at net realizable value on the balance sheet than doing nothing at all. The Financial Accounting Standards Board required disclosure of all significant concentrations of credit risk in the notes to the financial statements. Concentrations of credit risk are important for users to know so they can assess the future viability of the company. When using the direct write-off method, customers’ accounts receivable are written off to Uncollectible Accounts Expense at the time the company becomes aware that the customer will not be able to pay the amounts ow