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At the end of 2021, Larkspur Co. has accounts receivable of $653,700 and an allowance for doubtful accounts of $24,200. On January 24, 2022, it is learned that the company’s receivable from Madonna Inc. is not collectible and therefore management authorizes a write-off of $4,245.
A) Prepare the journal entry to record the write-off.
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What is the cash realizable value of the accounts receivable before the write-off and after the write-off?
Before Write-Off After Write-Off
Cash realizable value $ $

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jepessoa

Answer:

January 24, 2022, Madonna Inc.'c account is written off

Dr Allowance for doubtful accounts 4,245

    Cr Accounts receivable 4,245

the cash realizable value of the accounts receivable account:

  • before the write off = $653,700 - $24,200 = $629,500
  • after the write off = ($653,700 - $4,245) - ($24,300 - $4,245) = $629,500

The net balance of the account does not change because the allowance for doubtful accounts is a contra asset account that already decreased the accounts receivable balance.  

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