How would you handle the inevitable bad debts that occur in your new business

—These are the questions I received after I posted your response to my accounting discussion questions earlier this week. I don’t need these to answered in apa format, or there is no min word count. The info in red is what you answered for me earlier this week, the questions in black are what I recieved in response to those answers I posted.

Here is the first one

DQ# 1

I’ve heard a lot about copyrights lately. First, is there a such a thing as an intangible asset called “copyright,” and, second, if so, how should we account for it?

Here was your response to the original question

In accounting for intangible assets, there are two categories. There are those with limited economic life while the other category has indefinite life. Intangible assets with limited economic life are amortized while those with an indefinite life are not amortized. In amortizing the intangible assets with limited economic life, the amortization expense account is debited while the intangible asset is credited.

The intern is not correct. Intangible assets lack physical substance. However, they still result to benefits to the organization. The accounting for these assets is done by the allocation of costs to be expensed during the economic or the legal life of the asset. Intangible assets should only be amortized over the useful life unless the span of economic life is indefinite. An intangible asset with an indefinite life should not be amortized.

DQ #2

Let’s say you are just starting a business and plan to allow purchases of inventory and services to be made on account. Knowing what you’ve learned in this material and have discussed in your response, how would you handle the inevitable bad debts that occur in your new business?

Here was your response to the original question,

Under the direct write-off method, bad debts are expensed once they are ascertained that they are uncollectible. It is a general accounting technique that is used to account for bad debts once they are determined to be uncollectible. There are corresponding journal entries once bad debts become uncollectible. The bad debts are debited while the accounts receivable account is credited. Under the direct write-off method, accountants do not make use of the allowance or reserve account. Although the method is preferred for small businesses, it has disadvantages. It results to the violation of the matching principle under the Accepted Accounting Principles. The violation is due to the expensing of bad debts that are usually related to the previous accounting period.

Percentage of sales method for calculating doubtful debts should be used instead of the percentage of receivables method since it follows the Generally Accepted Accounting Principles. The GAAP requires that a receivables to be recognized at the net realizable value. Therefore, using the percentage of sales method, the estimation of the bad debts is usually in accordance with the matching principle which requires that bad debts to be recorded at the same accounting period that is associated with it.

…………………….Answer preview……………………..

Yes, there is an intangible asset called copyrights. A copyright is a grant by the federal government that gives an author, artist or creator the exclusive rights of selling, publishing or otherwise the control of either literary or artistic materials for the author’s life plus fifty years. Copyrights are accounted for like natural resources and depreciable assets. The cost of copyrights is allocated systematically to expense during the copyright’s useful or legal life, depending on the shorter one, but not for more than 40 years. The allocation of copyrights or generally intangible assets to expense is referred to as amortization. Intangible assets like copyrights are amortized using the straight line method. When a copyright is purchased, the amortizable cost is determined by the purchase price. There is either the full accrual accounting or the government’s statutory rates that can be used to determine the amortization of copyrights. Copyrights are also capitalized………………………………………….

APA

314 words

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