How will the notes receivable be recorded under

Reference no: EM133542062

Case: You are the owner of a full-service bookkeeping and auditing firm. A client contacts you about changing from the cash method of accounting to the accrual method. Her questions specifically relate to accounts receivable and bad debts and notes receivable. During its first year of operations, the company had net sales of $1,800,000, wrote off $51,000 of account uncollectible using the direct write-off method, and reported net income of $125,000. During the second year of operations, the company had net sales of $2,200,000, wrote off $61,500 of accounts as uncollectible using the direct write-off method, and reported net income of $143,500. The company also has several short-term notes receivable from customers.

Questions

-How will the notes receivable be recorded under the accrual method of accounting? How will the change in recording the notes affect the Income Statement and Balance Sheet?

-Determine what net income would have been in the first and second years if the allowance method had been used in both years and the company estimated that 3% of net sales would be uncollected. -How will the change from the direct write-off method to the accrual method aft both the balance sheet and income statement?

• Using the attached spreadsheet, calculate the net income for years one and two under the allowance method.

• Show the entries for both years that would need to be made under the allowance method and direct write-off method. Calculate the Accounts receivable turnover rate. • Journalize the company's notes receivable. • Next a memo to your client explaining the differences in net income between the direct write-off and allowance methods, how each will affect net income, and why your client should change to the allowance method. As part of your accounts receivable discussion, explain the turnover rate and its importance. Also, address how the notes receivable will be recorded under the accrual method of accounting and how the change will affect the income statement and balance sheet. Be sure to address generally accepted accounting principles in your explanations.

Reference no: EM133542062

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