Question

Quantum Technologies, a computer consulting firm, has decided to write off the $17,375 balance of an account owed by a customer. Illustrate the effects on the accounts and financial statements of recording the write-off based on the following assumptions: If no account or activity is affected, select "No effect from the dropdown list and leave the corresponding number entry box blank. Enter account decreases and cash outflows as negative amounts. (a) Assuming that the direct write-off method is used: Balance Sheet Statement of Cash Assets LiabilitiesStockholders Equity Flows Statement of Cash Flows Income Statement (b) Assuming that the allowance method is used: Balance Sheet Statement of Cash Assets Liabilities+Stockholders Equity Flows

Answer 1

Solution a: Direct write off:

Statement of Cash Flows	Balance Sheet
	Assets			=	Liabilities	+	Stockholders' Equity
	Accounts Receivable	+	No effect	=	No effect	+		Retained Earnings
	-17375							-$17,375
Statement of Cash Flows								Income Statement
No Effect								Bad Debt expense	17375

Solution b: Allowance method:

Statement of Cash Flows	Balance Sheet
	Assets			=	Liabilities	+	Stockholders' Equity
	Accounts Receivable	-	Allowance for Doubtful Account	=	No effect	+		No effect
	-17375		-17375
Statement of Cash Flows								Income Statement
No Effect								No effect