Managers from Cloud Ltd. have received the information that it is likely that one of its customers which represent 25%25% of trade receivables will not pay. The balance of trade receivables equals £135,200135,200. In addition, the current balance of insurance expense includes an amount of £4,2504,250 that corresponds to the next accounting period. After considering the two journal entries related to the two economic transactions, which of the following statements is true? a. Cloud Ltd. decreases assets by £29,55029,550 and increases expenses in the same quantity. b. Cloud Ltd. decreases assets by £33,80033,800, decreases expenses by £4,2504,250 and increases liabilities by £33,80033,800. c. Cloud Ltd. increases assets by £29,55029,550 and increases liabilities in £4,2504,250. d. None of the answers is true.
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.
Managers from Cloud Ltd. have received the information that it is likely that one of its customers which represent 25%25% of trade receivables will not pay. The
a.
Cloud Ltd. decreases assets by £29,55029,550 and increases expenses in the same quantity.
b.
Cloud Ltd. decreases assets by £33,80033,800, decreases expenses by £4,2504,250 and increases liabilities by £33,80033,800.
c.
Cloud Ltd. increases assets by £29,55029,550 and increases liabilities in £4,2504,250.
d.
None of the answers is true.
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