ABC Inc uses the allowance method to account for the amount of credit sales the

Question

ABC Inc uses the allowance method to account for the amount of credit sales the company believe it will not be paid for. Additionally the company writes off any receivables it receives confirmation from the customer will not be paid. As of Aug 1st, the company had a balance of accounts recievable of $123,000 and a balance of Allowance for incollectible accounts of $8,000. ABC Inc. received confirmation that one of its customers declared bankruptcy and therefore the company would not receive payment for the amount owed to them. The customer owes ABC $500. (Note ABC previously recorded uncollectible account expense for the customer.)

1. What is the journal entry that ABC would record to write off the customers balance?

2. What is the ending balnce of accounts receivable and allowance for uncollectible accounts after recording the journal entry?

3. What would ABC show as " Accounts Receivable, net" on the balnce sheet after the journal entry is recorded?

Explanation / Answer

1. Aug 1 Allow for Doubtful Accts Dr 500

Acct Rxbale Cr 500

(Cust rxable wrtten off due to bankruptcy)

2. Acct Rxable Balance will be 123000-500 = 122,500

Allow fr Uncoll accts Bal will be 8000-500 = 7500

3. Acct Rxabale 122500

Less ALlow for Uncoll 7500 Net Acct Rxable 115,000

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