Question

ith respect to the write-off of an uncollectible account receivable against the Allowance for Bad Debts account, a sound system of internal control would require: Multiple Choice an investigation of why credit was extended to this customer in the first place. a lawsuit to be initiated to recover the uncollectible amount. the write-off to be made within six months after the date of sale. the write-off be approved by two employees.

Answer 1

The write-off to be approved by two employees

Step-by-step explanation:

Allowance Method

This method is capitalizes on matching principle. The key work is to record bad debts expense in the same period as the sales revenue.

Direct Write-off Method

This is simply known as when an accounts receivable are written off and bad debts expense is recorded when the company determines that it will not be able to collect from a specific customer.

Method used

Record bad debts expense and reduce accounts receivable

Debit: Bad Debts Expense

Credit: Accounts Receivable

Recovery method

Step 1: Reverse earlier write off

Debit: Accounts Receivable

Credit: Bad Debts Expense

Allowance For Bad Debts Account

It is usually in a contra asset account, in relation to accounts receivable, that holds the estimated amount of uncollectible accounts. The account is said to limits the asset receivable in anticipation of uncollectible debts.