Pretend you are applying to be Manager of Accounts Receivable for Chimichanga Inc. Write a 1 page (maximum) paper on how you would determine collectability of the company A/R and how you would decide which accounts will be written off. Make sure to implement as many of the definitions we covered in Chapter 8 as possible, and make sure to write this as if you are really trying to land the job.

Important Note: Question has to be responded to as a College Student Level as a Paper.

Book of Accounting 2021 Lecture Class: Managerial Accounting

ACG2021   Chimichanga Inc.
Trial Balance
December 31, 2018
	Debit	Credit
Cash	7,000
A/R	3,000
Office Supplies (Asset)	3,000
Accounts Payable		1,000
Common Stock		10,000
Sales Revenue		7,000
Rent Expense	600
Salaries Expense	2,500
Supplies Expense	1,200
Utilities Expense	700
	18,000	18,000

Chimichanga Inc. bought a new food processing machine for $5,000 on January 1 st 2018, with a useful life of 5 years, and a residual value of $1,000. This information is not yet accounted for in the Trial Balance above.

Receivables include all money claims against other entities. Receivables are normally classified as accounts receivable, notes receivable, or other receivables.

1. The operating expense recorded from uncollectible receivables is called bad debt expense. The two methods of accounting for uncollectible receivables are the direct write-off method and the allowance method.
2. 
   
3. Under the direct write-off method, the entry to write off an account debits Bad Debt Expense and credits Accounts Receivable. Neither an allowance account nor an adjusting entry is needed at the end of the period.
4. 
   
5. Under the allowance method, an adjusting entry is made for uncollectible accounts. When an account is determined to be uncollectible, it is written off against the allowance account. The allowance account is a contra asset account that normally has a credit balance after the adjusting entry has been posted. The estimate of uncollectibles may be based on a percent of sales or an analysis of receivables. Exhibit 3 compares and contrasts these two methods.
6. 
   
7. Exhibit 4 illustrates the differences between the direct write-off and allowance methods of accounting for uncollectible accounts.
8. 
   
9. A note received to settle an account receivable is journalized as a debit to Notes Receivable and a credit to Accounts Receivable. When a note is paid at maturity, Cash is debited, Notes Receivable is credited, and Interest Revenue is credited. If the maker of a note fails to pay, the dishonored note is journalized by debiting an account receivable for the amount due from the maker of the note.
10. 
    
11. All receivables that are expected to be realized in cash within a year are reported in the current assets section of the balance sheet. In addition to the allowance for doubtful accounts, additional receivable disclosures include the market (fair) value and unusual credit risks.

Answer rating: 100% (QA)

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