The
following are the transactions from Izzy Inc. concerning the allowance for
doubtful accounts.
1.
Writeoff of accounts receivable …………………………………….. $5,000
2.
Recovery of accounts previously written off ……………………….. 3,500
3.
Accrual for bad debt expense ……………………………………….. 4,400
Assume
these are the only transactions for the year.
Instructions
(a)
Record the above transactions.
(b)
Prepare the reporting necessary on a partial statement of cash flows using
1.
The direct method, and
2.
The indirect method.
Allowance
for Doubtful Accounts...... 5,000
Accounts Receivable.............. 5,000
Accounts
Receivable.................. 3,500
Allowance for Doubtful Accounts.. 3,500
Cash................................. 3,500
Accounts Receivable.............. 3,500
Bad Debt
Expense..................... 4,400
Allowance for Doubtful Accounts.. 4,400
Cash provided by (used in) operations — Direct Method
Cash received
from customers....... $3,500
Cash provided by (used in) operations — Indirect
Method
Start with net income decreased by bad
debt expense...................... $(4,400)
Changes in
non-cash working capital:
Decrease in
accounts receivable net
of net write-offs (1).. 7,900
Net increase in cash................. $3,500
(1) Account receivable:
Bad debt write-off............... $(5,000)
Bad debt recovery................ 3,500
Collection of bad debt recovered. (3,500) $(5,000)
Allowance for doubtful accounts:
Bad debt write-off............... $5,000
Bad debt recovery................ (3,500)
Accrual of bad debt expense...... (4,400) (2,900)
Decrease in accounts receivable, net $(7,900)
