ChAPIER 0RECEIVABLES O Previous Page 16 of 29 Next Under the

ChAPIER 0-RECEIVABLES O Previous Page 16 of 29 Next Under the direct write-off method, when a specific account is written off a. net income will increase Ob. total assets will decrease c. total assets will increase O d, total assets will be unchanged

Solution

Under the direct write off method, the specific uncollectable amount is removed from the accounts receivable and this amount is recorded as bad debt expense. For example , if $1,000 is considered uncollectabl;e, the journal entry will be:

Account

Debit

Credit

Bad Debt Expense

$1,000

Accounts Receivable

$1,000

Expense is increased and asset (accounts receivable) is decreased.

This will result in decrease of net income and decrease of total assets.

Answer:

b. Total Assets will decrease

Under bad debt allowance method, uncollectable amount is estimated.

The recognition entry is passed by debiting bad debt expenses and crediting “Allowance for doubtful accounts”.

Suppose, at the end of the year , we estimate uncollectable amount as $1,000, the adjusting entry will be:

Bad debt expenses

$1,000

Allowance for doubtful accounts

$1,000

To arrive at net accounts receivable, Allowance for doubtful debt is subtracted from Accounts Recivable

Answer:

c. Subtracted from Accounts Receivable

Allowance for doubtful accounts is a contra receivable account

Answer:

c. contra Asset Account

Account	Debit	Credit
Bad Debt Expense	$1,000
Accounts Receivable		$1,000