Homework Lance
Topic 3 DQ 2
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Whenever a business starts running, minimizing the unpaid accounts is very important. Bad debts are accounts that are unable to be collected. They can be explained in two ways at the most basic level. The first is the sales revenue approach, which estimates bad debt costs as a percentage of sales. Using this method, a corporation will evaluate client accounts, present economic situations, and experiences (Lee,, & Choi, 2016). A corporation can anticipate the percentage of revenue that will be uncollectible based on an analysis of these factors. Gross receivables are the total amount of open bills owed to a firm at any one moment, regardless of whether or not the invoices are likely to be collected. Sales on account (i.e., non-cash sales) typically produce invoices, which indicates that items or services are given before payment.
According to Suzuki, (2019), in most cases, an invoice is due and payable 30 days after the products or services have been delivered, for instance, in situations where there is an allowance for doubtful. The allowances for doubtful accounts is counter-assets accounts connected to receivable accounts that aims to realize the accounts’ actual worth. The figure shows the projected value of accounts receivable for which a business somehow doesn’t expect to be paid. For example, assume a corporation has 100 credit-card clients with a total debt of $1,000,000. The $1,000,000 will appear as receivable accounts on the income statement. The allowance for doubtful customers can be used to determine how many customers from a 100 will fail to make a payment owing. Instead of monitoring to see how payments proceed, the company will levy a bad debt expense and give credits for doubtful customers. According to, Lee, &Choi, (2016), it’s a way to boost sales by luring clients who don’t have access to cash right now. Thus, for a firm to have fewer uncollectible, it would be tougher to select consumers for credit sales, which might impair its total profitability since sales would decline.
References
Lee, H. A., & Choi, W. W. (2016). Allowance for uncollectible accounts as a tool for earnings management: Evidence from South Korea. International Journal of Accounting & Information Management.
Suzuki, D. (2019). Stock and flow in accounting. Balance sheet and income statement approaches. AMIS IAAER 2019, 354.
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