Answer:
See answers and explanation below.
Explanation:
1. Journalize the transactions for High Performance Cell Phones using the direct write-off method. Ignore Cost of Goods Sold.
<u>Date Details Dr ($) Cr ($) </u>
1 Jun. 18 Account receivable 17,000
Sales revenue 17,000
<u><em> To record sales to Ashton Trucking Company on account.</em></u>
15 Jul. 18 Cash 6,000
Account receivable 6,000
<em> </em><u><em> To record cash received from Ashton Trucking Company. </em></u>
5 Sep. 18 Bad debt 11,000
Account receivable 11,000
<em> </em><u><em> To record accounts receivable from Ashton written off. </em></u>
5 Mar. 19 Account receivable 11,000
Bad debt 11,000
<em> </em><u><em> To record transfer of bad bad back toaccounts receivable. </em></u>
5 Mar. 19 Cash 11,000
Account receivable 11,000
<em> </em><u><em> To record cash received from Ashton Trucking Company. </em></u>
2. What are some limitations that High Performance will encounter when using the direct write-off method?
a. It is not in line with the matching principle. This is because bad debt expenses will not be reported in the same period they are incurred and might not be realized as bad expenses until the following period.
b. It can cause inaccurate balance sheet as it does give the actual amount of accounts receivable of a company.
c. It method of recording violates GAAP and financial statements does to present the actual financial performance of the business.
d. It overstates accounts receivable as the full amount of amount owed to the company from credit sales will be reported as accounts receivable.
