The following information is from the records of H2O Events for Year 1: Credit sales during the year $2,400,000 Accounts receivable (December 31, Year 1) 410,000 Allowance for doubtful accounts (December 31, Year 55,000 1) Bad debt expense for the year 70,000 Refer to H2O Events. What are the effects on the accounting equation when the company writes off a bad debt under the allowance method? O Assets increase and shareholders' equity decreases. O Assets decrease and shareholders' equity increases. O Assets and shareholders' equity decrease. O There is no effect on overall assets or shareholders' equity.
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.
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