Some Thoughts on Tyler Cowen's 5 Points to Reground the Debate Over the GSEs Seeking Alpha
Tyler Cowen asks How much did Fannie and Freddie cause the financial crisis? , trying to reground the debate over the GSEs in firmer soil with five points. Many others are answering this question by looking at the collapse moment; I want to focus on the origination of bad mortgage debt and the bubble itself. I pinged David Min to see if he wanted to respond, and I throw his arguments in with my own below.
Cowen: “1. It is not denied that the mortgage agencies were guaranteeing about half of all U.S. mortgages right before the crisis…”
David Min: “This conflates outstanding mortgages vs. annual mortgage originations (sort of like a snapshot vs. a video). The GSEs were guaranteeing nearly half of all mortgages in the late 1990s and early 2000s. But from 2002-2005, they saw a fairly precipitous drop in market share, going from about 50% to just under 30% of all mortgage originations. Conversely, private label securitization [PLS] shot up from about 10% to about 40% over the same period. This is, to state the obvious, a very radical shift in mortgage originations that overlapped neatly with the origination of the most toxic home loans.
Receivables Example (Allowance Method & Bad Debt Expense)
This is an exercise that is intended to walk you through an receivables exercise where you have to estimate bad debt expense under the allowance ...
Under the direct write-off method of accounting for uncollectible accounts, Bad Debts Expense is debited?
a.at the end of each accounting period.
b.when a credit sale is past due.
c.whenever a pre-determined amount of credit sales have been made.
d.when an account is determined to be worthless.
another question about accounting-bad debts- to pagreen1966 or anyone else in fact?
Thank you very much for answering my question. I still have one unresolved issue. When there is a change in the provision, we change the bad debts by the same amount, right? and those bad debts decrease our debtors.( btw is provision for bad debts a contra asset to the debtors?) however, with the debtors then shown as net of the provision in the balance sheet, doesn't that mean that the change in the provision affects the debtors twice?
And also, I do not understand logically why a change in the provision would increase or reduce the expense? I mean what is the relationship, since as you said the provision is an estimation and bad debts is what actually has happened.
Thank you very much.
Maria.
I found the following link on the ACCA website which may be of help to you:
http://www.accaglobal.com/archive/sa_oldarticles/11983?session=0021e667ffffffff0a0121384626569ab26265694fcd7bc4716ae991b273d7d4
Kind Regards
Peter
How do yo use the allowance method to account for bad debts in accounting?
Can you seen me an example of a problem about bad debits for accounting
try this site
http://www.futureaccountant.com/
1. Direct write off method
2. Allowance method (GAAP)
Direct write off method recognizes the amount of bad debts as entirely uncollectible such that the amount is directly written off as an expense by debiting bad debts expense and crediting accounts receivable.
The allowance method only provides for an allowance for a certain amount or percentage of the total receivables (depending on a reasonable estimate) that will be uncollectible. In recognizing this allowance, bad debts expense is debited and credit allowance for bad debts. the allowance for bad debts is a "contra-account" that is presented after accounts receivable in the balance sheet and is normally deducted to come up with the net accounts receivable.
Accounting question: which method of accounting for bad debts expense?
is this: accounts receivable
allowance for doubtful accounts
sales
is it the direct write off method or the allowance method. and can you tell?
When you have an "allowance" account, you are using the Allowance Method.
Direct write off method does not utilize an allowance account.
What is the nature of and the accounting for bad debts?
bad nature debt accounting
You might want to refer these URL's for the Types of Business Bad Debts and How to account for Bad Debts.
Let me know if this was helpful.
Accounting - Bad Debt Expense vs Allowance for Doubtful Accounts?
I am unclear as to what the true definition and meaning of Bad Debt Expense and Allowance for Doubtful Accounts.
For example, an adjustment of $15 is recorded for Bad Debt
This would debit Bad Debt Expense by $15
This would credit Allowance for Doubtful Accounts by $15
Correct?
Naturally, Bad Debt Expense is treated as an Expense but what is Allowance for Doubtful Accounts? Is this considered a liablity?
The allowance account is a contra asset account which is deducted from accounts receivable on the balance sheet to arrive at net receivables. Under the conservatism principle of accounting, receivables should be reported at the amount most likely to be collected rather than the full amount. Before financial statements are prepared an estimate is made of the amount of receivables that will become bad. That way the bad debts expense is recorded in the year when the receivables were earned, and receivables are reported at their estimated net realizable value.
Estimating and reporting bad debts (accounting homework help)?
Prepare the adjusting entry for a company to recognize bad debts under each of the following independent assumptions.
1)
a) bad debts are estimated to be 1.5% of credit sales
b) Bad debts are estimated to be 1% of total sales
c) An aging analysis estimates that %5 of year end accounts receivable are uncollectable.
2) Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on it's Dec. 31st 2008 balance sheet given the facts in part 1A.
3) Show how Accounts receivable and the Allowance for Doubtful Accounts appear on its Dec. 31 2008 balance sheet given the facts in part 1C.
At Dec. 31 2008, a company reports the following results for it's calender year.
Cash sales ......$1905,00
Credit sales.......5682.00
In addition to it's unadjusted trial balance includes the following items:
Accounts receivable.........$1,270,100 debit
Allowance for doubtful accounts....16,580 debit
This is part of my homework that's due next week but due to unforeseenn circumstances, I missed one class this week, and the instructor cancelled one. I have no idea how to even begin this. He'll go over it tomorrow (if he shows up) but simply put...I'm not smart enough to understand him when he tries to cram two days of class into one.
Lisa,
Hi Again....try this website http://www.accountingcoach.com/
it's a free website, and I haven't checked it out thoroughly but from looking at it briefly I think it may answer some of your questions and be a big help to you since apparently your instructor isn't.
Grannie
In financial accounting, how do you account for bad debts using the % of accounts receivable approach?
I'm in a financial accounting class and, using the allowance method, estimate the bad debts using the "percentage of accounts receivable" approach, and I can't seem to figure it out. Here's the problem:
At the beginning of 2008, EZ Tech Company's accounts receivable balance was $140,000 and the balance in Allowance for Doubtful Accounts was $2,350 (cr.). EZ Tech's sales in 2008 were $1,050,000, 80% of which were on credit. Collections on account during the year were $670,000. The company wrote off $4,000 of uncollectible accounts during the year.
Prepare journal entries to recognize bad debts assuming amounts expected to be uncollectible are 6% of the year-end accounts receivable.
Anyone know how to do this?
First you need to update your AR balance at year end.
140k beg balance + additional AR for the year (1,050k x 80%) - collection (670k) - the w/off (an AR w/off entry is Dr. Allowance Cr.AR) = 306k
Now looks at the allowance a/c. Beg bal = 2,350 BUT you have a w/off during the year of 4k . With the w/off, your balance has actually become DR of 1,650. NOT long because the you need to reflect the allowance a/c to be 6% of the year end AR balance of (6% x 306k = 18,360).
So, in your journal, you need to post
Dr. Bad debt expense
Cr. Allowance of (18.36k + 1.65k)
so that your balance becomes 18,6k CREDIT.
Cheers...
Cheers...
Accounting: Corporate Bad Debts?
with bad debts calculated using the income statement method(historical rate of .15% of net sales uncollectable)... and we know that an recorded entry of 8000 dollars was already written off as uncollectable.
my question is this: if we know the the beginning balance of 5000 cr in allowance for doubtful accounts, and net sales is 3,680,000, how do you find the balances in the bad debt and allowance accounts at the end of the year?
Bad debt expense is 0.15% of sales, or 5,520
The allowance at the end of the year is 2,520 (5,000 + 5,520 - 8,000)
comparison of the direct write -off and allowance methods of accounting for bad debts. I need help with this?
In the first year of business, Ride away bikes has net income of 145,000, exclusive of any adjustment for bad debt expense. The president of the company has asked you to calculate net income under each of two alternatives o accounting for bad debts: the direct write-off method and the allowance method. The president would like to use the method that will result in the higher net income. So far, no adjustments have been made to write off uncollectible accounts or to estimate bad debts. The relevant data are as follows:
Write-offs of uncollectible accounts
During the year $10,500
Net credit sales 650,000
Estimated percentage of net credit sales that will be uncollectible 2%
Compute net income under each of the two alternatives. Does rideaway have a choice as to which method to use? If so, should it base its choice on which method will result in the higher net income? Ignore income taxes.
Under the direct write-off method, $10,500 will be charged as an expense in the income statement, and the net income will be $145,000 - $10,500 = $134,500.
Under the allowance method, 2% x $650,000 or $13,000 will be charged to the income statement, and the net income will be $145,000 - $13,000 = $132,000.
Yes, Rideaway has a choice and if the president prefers to show a higher net income, he'll use the direct write-off method.
accounting bad debts - News
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China Shenzhen Bank shares slump on loan provisions The mid-sized Chinese lender, based in the southern boom town of Shenzhen and which has long carried high levels of bad debt relative to its peers, |
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10KSB: CASE FINANCIAL INC Compared to 2007, Bad Debts decreased $471073 for the year end September 30, 2008. The Company had significant bad debts in 2007 due to write-offs related |
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10-Q/A: CHINA LOGISTICS GROUP INC This increase resulted from the one-time recovery of bad debt of $380978 related to Shandong Jiajia. As a result of favorable fluctuations in our gross |
