Question

On December 31, 2017, Extreme Fitness has adjusted balances of $820,000 in Accounts Receivable and $59,000 in Allowance for Doubtful Accounts. On January 2, 2018, the company learns that certain customer accounts are not collectible, so management authorizes a write-off of these accounts totaling $12,000.

1. What amount would the company report as its net accounts receivable on December 31, 2017?
2. Prepare the journal entry to write off the accounts on January 2, 2018.
3. Assuming no other transactions occurred between December 31, 2017, and January 3, 2018, what amount would the company report as its net accounts receivable on January 3, 2018? Has net accounts receivable changed from December 31, 2017?

Answer 1

Part A. Gross account receivable. -. 820000

- Allow. On doubtful receivable. (59000)

Net a/c receivable. 761000

Part B. 1. Bad debts ...dr. 12000

To a/c receivable. 12000

2. Allowance for doubtful debts ....dr. 12000

To bad debts. 12000

Part 2. No other transactions*. Line means that apart from bad debts there is no transaction happens. So there is no change in net receivable on 3rd jan. Working as below.

Gross receivables. 808000. (820000-12000)

- allow. For doubtful. (47000). (59000-12000)

Net receivable. 761000

Now your doubt may be in entry why we deduct the bad debts amount from both i.e. allow. & Receivable

The reason is we have created the fund allow. P&l a/c therefore after passing the entry in receivable the bad debt account is opened and the emd of the year we have to close this acc. From p&l but herr we have make the allow. Already from the p&l so we can close the acc. From the same only.