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Allowance for uncollectable accounts
Assume there is a sufficiently large credit balance in the allowance for uncollectible accounts. The act of writing off an uncollectible account will
a. have no effect on assets b. reduce total assets c. reduce net income for the period d. reduce both assets and retained earnings |
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The act of writing off an uncollectible account will have no effect on assets.
Reason: Account receivables are shown at their Net reliazable value > For example: Acc. Recv. 1000 Less: All. for uncoll. amt. (500) ____ Net Acc. Recv. 500 If uncollectable acc. Is written down then it will affect both acc. Recv. & allow. For uncoll amt. accounts. Amount written down = 100 [Dr.] All. for uncoll. amt. 100 [Cr.] Acc. Receivable 100 Hence there will be no impact. Acc. Recv. 900* Less: All. For uncoll. amt. (400)** _____ Net Acc. Recv. 500 * 1000-100=900 ** 500-100=400 |
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