AIPOD FND154 W5A1 Sah K Essay

Submitted By Kunal-Sah
Words: 519
Pages: 3

Kunal Sah
Instructor Harrison
13 June 2015
Business owners are completely aware at all times that some customers who may receive credit at some point in time, will never pay their account balances off. Uncollectible amounts as such are called bad debts, and companies usually use one of two methods for accounting purposes when it comes to transactions like these: the direct write-off method and the allowance method. The direct write-off method is used mainly for tax purposes, and it will only be utilized when the company is completely certain that their outstanding debt will not be paid. Before that debt is determined that it won't ever be paid off, the company generally makes numerous attempts to get in contact with the customer whom needs to pay the balance off. Under the allowance method, an adjustment may be made at the end of each accounting period to estimate all of the bad debts solely based on the business progression from that accounting period. Established companies rely on past experiences to estimate newly unrealized bad debts, but new companies must rely on published industry averages typically until they have sufficient experience. A note receivable from the current asset section of a balance sheet, is a short-term debt someone owes you. A note receivable has three major components, the principal, the rate and the time. Any note receivable involves three important considerations: recognition, valuation, and disposition. A note receivable reflects only in the current asset part of the balance sheet because of the debt that is anticipated will be paid back within 12 months of the balance sheet date. The cost of plant assets includes all expenditures necessary to acquire the asset and to be sure it is ready for its intended use. Cost is measured by the cash, or cash equivalent price paid. Depreciation is the allocation of the cost of a plant asset to expense over its service life in a rational and systematic manner. Depreciation is not a process of valuation, nor is it a process that results in an accumulation of cash. Companies incur revenue expenditures to maintain the operating