Question

On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried...

On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500, respectively. During the year Kincaid reported $72,500 of credit sales. Kincaid wrote off $550 of receivables as uncollectible in Year 2. Cash collections of receivables amounted to $74,550. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales.

Kincaid's entry required to recognize the write off of the uncollectible accounts will:

Multiple Choice

  • Increase total assets and total equity
  • Increase total assets and decrease total equity
  • decrease total assets and total equity
  • Not affect total assets or total equity

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Answer #1

Solution:

Kincaid's entry required to recognize the write off of the uncollectible accounts will "Not affect total assets or total equity".

The entry to write off the uncollectible will be:

Allowance for Doubtful Accounts Dr $550

To Accounts Receivable $550

In above entry Debit/decrease to Allowance for doubtful account will increase the asset and Credit/Decrease in accounts receivable will decrease the assets. Therefore, Net effect on assets will be "nil".

Hence last option is correct, i.e. "Not affect total assets or total equity".

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