Originally Posted by
rehmanvohra
I just do not understand where did you get the idea of cancelling out. Actually there is no change in the opening and closing balances of allowance for doubtful debts account.
Now about the relevance part. As you know that the Accounts Receivable Account is reported at its face value and a contra account is reported to arrive at its net realizable value. That means both accounts are relevant.
The amount of $28,000 was arrived at as an expense. How did you get that figure?:
Opening balance in allowance account $50,000
Add Recovery of bad debts previously written off $2,000
Less Bad debts actually written off during the year $30,000
Balance in allowance account before adjustment $22,000
Now that we need a balance in allowance account $50,000
Less Adjusted balance in the account $22,000
Provision needed to bring the amount to desired level $28,000
Bad debts expense is reported in income statement as $28,000 and allowance account appears as a contra to accounts receivable