Question

In 2018, UBC deducted a reserve for doubtful debts of $12,000. During 2019, they had actual write-offs of $12,500 and recoveries of previously written off debts of $1,500. At the end of 2019, they deducted a reserve for doubtful debts of $14,000.

Calculate the net impact on the business income of UBC given the above information with respect to bad debts.

Answer 1

The net impact on business income of UBC for 2019 would be as below:
a) Write offs of $12,500 would debit the reserve for doubtful debts and credit the accounts receivable and hence no impact on income statement.
b) Recoveries of debts of $1500 would debit the accounts receivable and credit the reserve for doubtful debts account and hence no impact on income statmeent.
c) Deduction of $14,000 for a reserve for doubtful debts would debit the bad debts expense account and credit the reserve for doubtful debts account and hence would reduce the profits on the income statement as bad debts expense of $14,000 is an expense account line.

Net impact on income statement of UBC for 2019 would be $14,000.