E8-17 (Supplement 8A) Recording Write-Offs and Reporting Accounts Receivable Usi

Question

E8-17 (Supplement 8A) Recording Write-Offs and Reporting Accounts Receivable Using the Direct Write-Off Method [LO 8-S1 Trevorson Electronics is a small company privately owned by Jon Trevorson, an electrician who installs wiring in new homes. Because the company's financial statements are prepared only for tax purposes, Jon uses the direct write-off method. During 2015, its first year of operations, Trevorson Electronics sold $32,000 of services on account. The company collected $27,000 of these receivables during the year, and on believed that the remaining $5,000 was fully collectible. In 2016, Jon discovered that none of the $5,000 would be collected, so he wrote off the entire amount. To make matters worse, Jon sold only $6,500 of services during the year.

Explanation / Answer

Solution 1:

Solution 2a:

Solution 2b:

2015 was not as profitable as indicated by its income statement because bad debts of $5,000 was related to 2015, which were recorded in 2016 as company following direct write off method.

Solution 2c:

2016 was not so much bad as indicated by income statement because bad debts expense related to 2015 were recorded in 2016 due to which income of 2016 reported on lower side.

Journal Entries - Trevorson Electronics Date Particulars Debit Credit 2015 Accounts receivables Dr $32,000.00                    To Service Revenue $32,000.00 (Being service revenue recorded on account) 2015 Cash Dr $27,000.00                    To Accounts Receivables $27,000.00 (Being cash collected from customer) 2016 Bad Debts expense Dr $5,000.00                    To Accounts Receivables $5,000.00 (Bad debts written off) 2016 Accounts receivables Dr $6,500.00                    To Service Revenue $6,500.00 (Being service revenue recorded on account)

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