Determine the effect on a company’s Assets and net Income from the following transaction: bad debt expense is recorded by a company using the allowance method to account for bad debts.
|F||None of the above|
A company began the year with Accounts Receivable of $250,000 and a balance in Allowance for Doubtful Accounts of $11,000 (cr.). During the year, the company had credit sales of $540,000, collections on Accounts Receivable of $600,000 and wrote off $9,000 for accounts specifically identified as uncollectible. Additionally, the company collected on $2,500 of accounts previously written off during the year.
Past experience indicates that 2% of credit sales will become uncollectible.
Under the allowance method of recognizing uncollectible accounts, the entry to write off an uncollectible account has what effect on the following accounts (indicate Increase, Decrease, or No Effect)
At December 31, a company has the following balances:
|Accounts Receivable||35,000||Credit Sales||60,000|
|Allowance for Doubtful Accounts||500 (credit)||Cash||5,400|
The company uses the balance sheet method to estimate bad debt. Management determined the estimate to be 3%. Under these circumstance, record the year-end adjusting entry for bad debt expense.