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.
- 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).
- 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.
- 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.
- 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 re