Question

At the end of 2019, Sorter plc has accounts receivable of £900,000 and an allowance for doubtful accounts of £40,000. On January 16, 2020, Sorter determined that its receivable from Ordonez Orchards of £8,000 will not be collected, and management authorized its write-off.

Instructions

a. Prepare the journal entry for Sorter plc to write off the Ordonez receivable.

b. What is the cash realizable value of Sorter plc's accounts receivable before the write-off of the Ordonez receivable?

c. What is the cash realizable value of Sorter plc's accounts receivable after the write-off of the Ordonez receivable?

Answer 1

A. Journal entry for writing off of an account receivable is a debit to the bad debt expense account and a credit to the account receivable account.

Therefore journal entry in the books of sorter plc will be

Bad debt expense account Dr. 8000

To account receivable account. 8000

B. Cash realisable value of sorter plc before write off of ordonez receivable will be

Balance in account receivable 900,000

Allowance for doubtfull account. 40,000

Balance before write off = 900,000-40,000= 860,000

C. Cash realisable value after write off of ordonez receivable will be:

Balance before write off= 860,000

Balance to be written of = 8000

Balance of account receivable after write off= 860,000-8,000 = 852,000

SUMMARY

All the information has been provided.