Question

TravelToday, Inc., disclosed the following rounded amounts (in thousands) concerning the Allowance for Doubtful Accounts on its Form 10-K annual report.

	Allowance for Doubtful Accounts
	(dollars in thousands)
		Beginning				Increases for				Decreases for				Ending
	Year	Balance				Bad Debt Expense				Write-Offs				Balance
	2016	$	9,300			$	4,150			$	?			$	1,350
	2015		8,300				4,750				3,750				9,300
	2014		12,800				1,050				5,550				8,300

Required:

1-a. Prepare a T-account for the Allowance for Doubtful Accounts and enter into it the 2014 amounts from the above schedule. The balance at the beginning of each year in the Allowance for Doubtful Accounts is a credit balance.

1-b. Write the T-account in equation format to prove the above items account for the changes in the account.

2. Record summary journal entries for 2015 related to (a) estimating Bad Debt Expense and (b) writing off specific customer account balances.

3. Supply the missing information for 2016.

4. If TravelToday had written off an additional $33 of Accounts Receivable during 2016, by how much would Net Receivables have decreased? How much would Net Income have decreased?

Answer 1

2.

3.

4.

Write off would be recorded as debit to allowance for doubtful account and credit to accounts receivable. Both the accounts decreased by $33. Since, allowance for doubtful accounts is a contra account of accounts receiable, the net effect of this write off on net receivable would be zero. No income statement item is affected due to this transaction.

Therefore, write off an additional amount of $33 does not affect net receivable as well as net income.