) Lail Inc. accounts for bad debts using the allowance method. On June 1. Lail Inc. wrote off Andrew Green's $2,500 account. Based on Lail's estimation, Andrew Green will never pay any portion of the balance in his account. What effect will this write-off have on Lail Inc!'s balance sheet at the time of the write-off? A) None of the above. B) A decrease to assets and a decrease to stockholders' equity C) An increase to assets and an increase to stockholders' equity. D) An increase to stockholders' equity and a decrease to liabilities.
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Please answer the following 3 questions:
1) Lail Inc. accounts for
A) None of the above.
B) A decrease to assets and a decrease to
C) An increase to assets and an increase to stockholders' equity.
D) An increase to stockholders' equity and a decrease to liabilities.
2) In a perpetual inventory system, the purchase of inventory is debited to:
A) Cost of Goods Sold.
B) Purchases.
C) Inventory.
D) Accounts Payable.
3. Under the allowance method, which of the following does not change the balance in the Accounts Receivable account?
- A) Collections on customer accounts.
- B) Write-offs.
- C) Returns on credit sales.
- D) Bad debt expense adjustment.
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