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Illustrate the effects on the accounts and financial statements of the following transactions in...

Question:

Illustrate the effects on the accounts and financial statements of the following transactions in the accounts of Laser Tech Co., a hospital supply company that uses the direct write-off method of accounting for uncollectible receivables:


May 10. Received $10,000 on an account and wrote off the remainder owed of $31,500 as uncollectible.

Dec. 2. Reinstated the account that had been written off on May 10 and received $31,500 cash in full payment.

Direct Write-off:

The direct write-off is a method used in recording the bad debts expense. Using this method, an entry will include a debit to bad debts expense and credit to accounts receivables.

Answer and Explanation: 1

DateEffect on the AccountsEffect on the Financial Statements
May 10Increase in cash 10,000 and bad debts expense 31, 500 and decrease in accounts receivable 41,500Decrease in Balance Sheet amounting to 31,500 and decrease in income statement 31,500
Dec 2Icnrease Cash 31,500 and decrease bad debt expense 31,500Icnrease balance sheet 31,500 and increase income statement 31,500

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Uncollectible Accounts, the Allowance Method & Bad Debt

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Chapter 7 / Lesson 3
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Do you think that every customer that opens a credit account will pay off their balance completely? In the real world, not every customer does. In this lesson, you are going to learn what uncollectible accounts are and how to account for them.


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