Chapter 5, Problem 2E

Exercise 7-1A Analysis of financial statement effects of accounting for uncollectible accounts under the allowance method

Businesses using the allowance method for the recognition of uncollectible accounts expense commonly experience four accounting events:

1. 1. Recognition of uncollectible accounts expense through a year-end adjusting entry.
2. 2. Write-off of uncollectible accounts.
3. 3. Recognition of revenue on account.
4. 4. Collection of cash from accounts receivable.

Required

Show the effect of each event on the elements of the financial statements, using a horizontal statements model like the one shown next. Use the following coding scheme to record your answers: increase is +, decrease is −, not affected is NA. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). The first transaction is entered as an example.