Valuation of Account Receivables Allowance Methods Direct Write-Off Method Basis Estimated Loss No estimate of potential loss Year-End Adjustment No year-end adjustment Write-Off % of Receivables Recovery GAAP? Not GAAP; when material GAAP: requires when material Inventory Cost Flow Perpetual System Periodic System Continuously tracks changes in the Determines the quantity of inventory on Inventory account hand only periodically Method Purchases Freight-in Purchase R&A/ Purchase Disc Sales Entry 1: Entry 1: Entry 2: For Each Sales To detect misstatement; Record the necessary write-down No write-down After taking a physical inventory Ending Inventory COGS Benefit Better control Simpler accounting process