CHAPTER 4 ACCOUNTS RECEIVABLE TECHNICAL KNOWLEDGE To know the classification and presentation of receivables. To know the initial and subsequent measurement of accounts receivable. Fo identify the adjustments necessary in determining the net realizable value of accounts receivable. To understand the gross method and net method of recording credit sales. To know the accounting for doubtful accounts, worthless accounts written off and recoveries of accounts written off. spective authorsDefinition Receivables are financial assets that represent a contractual ae to receive cash or another financial asset from another entity. For retailers or manufacturers, receivables are classified into trade receivables and nontrade receivables. Trade and nontrade receivables Trade receivables refer to claims arising from sale of merchandise or services in the ordinary course of business. Trade receivables include accounts receivable and notes receivable. Accounts receivable are open accounts arising from the sale of goods and services in the ordinary course of business and not supported by promissory notes. Other names of accounts receivable are customers’ accounts, trade debtors, and trade accounts receivable. Notes receivable are those supported by formal promises to pay in the form of notes. . Nontrade receivables represent claims arising from sources other than the sale of merchandise or services in the ordinary course of business. Loans receivable For banks and other financial institutions, receivables result primarily from loans to customers. 2 The loans are made to heterogeneous customers and the repayment periods are frequently longer or over several years. 1091 | | Classification ted to be realized in cash Trade receivables, which are expect or one year, Whichever jg within the normal operating cycle longer, are classified as current assets. cted to be realized in cash Nontrade receivables which are expe ; ting cycle notwithstanding, within one year, the length of the operat are classified as current assets. If collectible beyond one year, nontrade receivables are classified as noncurrent assets. accordance with PAS 1, Presentation The classifications are in aragraph 66, which states: of Financial Statements, pé “An entity shall classify an asset as current when the entity expects to realize the asset or intends to sell or consume it in the entity's normal operating cycle, or when the entity expects to realize the asset within twelve months after the reporting period." Presentation and nontrade receivables which are currently n the face of the statement of called trade and other receivables. ‘Trade receivables collectible shall he presented o1 financial position as one line item However, the details of the total trade and other receivables shall be disclosed in the notes to financial statements. For example, the disclosure may appear as follows: Accounts receivable 5,000,000 ‘Allowance for doubtful accounts (200,000) Notes receivable 1,000,000 Accrued interest on note receivable 150,000 Advances to officers and employees . 100,000 Dividends receivable 250,000 Total trade and other receivables 6,300,000 = 110 Ae ae) eee to respective authors | e consider buving the - ginalExamples of nontrade receivables a. Artvantes to or receivables from shareholders, directors, officers of smal bla If collectible in one year, such advances or receivables should be classified as current assets. Otherwise, such g 2 , advances or re: : : A STEN Ee aaaeie ceivables are classified as Advances to affiliates are usually treated as long-term te I Advances to supplier for the acquisition of merchandise are current assets. Subscriptions receivable are current assets if collectible within one year. Otherwise, subscriptions receivable should be shown preferably as a deduction from subscribed share capital. Creditors’ accounts may have debit balances as a result of overpayment or returns and allowances. These are classified as current assets. If the debit balances are not material, an offset may be made against the creditors’ accounts with credit balances and only the net accounts payable may be presented. Special deposits on contract bids normally are classified as noncurrent assets because such deposits are likely toremain outstanding for a considerable long period of time. However, the deposits that are collectible currently should be classified as current assets. Accrued income such as dividend receivable, accrued rent receivable, accrued royalties receivable and accrued interest receivable on bond investment are usually classified as current assets. Claims receivable such as claims against common carriers for losses or damages, claim for rebates and tax refunds, claim from insurance entity, are normally classified as current assets. 111Customers’ eredit balances Customers’ credit balances are credit balances in account, receivable resulting from overpayments, returns anq allowances, and advance payments from customers. These credit balances are classified as current liabilities ang are not offset against the debit balances in other customers accounts, except when the same is not material in which cage only the net accounts receivable may be presented. For example, the accounts receivable controlling account reports a balance of P500,000. Examination of the subsidiary ledgers reveals the following details in the customers accounts. Customer A omer Sales Collections 400,000 Debit balance 400, i £00,000 Customer B Sales Collections Debit balance Customer C Sales 500,000 Collections 450,000 Creditbalance _ 50,000 Returns 100,000 550,000 550,000 The accounts receivable should be presented as current asset at P550,000 representing the accounts of A and B. The credit balance in the account of C is classified as current debi pol not offset against the debit balances in the accounts | and B. No adjustment is necessary to formally recognize the customers’ credit balances because ultimately these are canceled for sales and cash settlement. But an adjustment may be made only for worksheet )08e8, meaning, not formally journalized and posted to the Ei a8 follows: Accounts receivable 50,000 Customers’ credit balances 50,000 112 All rights belongs to | e der b respectiy 3 authors vi yInitial measurement of accounts receivable Pee nee 5.1.1, provides that a financial asset shall je recog! ue init ally at fair value plus transaction costs that are directly attributable to the acquisition. ‘The fair value of a financial asset is usually the transaction price, meaning, the fair value of the consideration given. For short-term receivables, the fair value is equal to the face amount or original invoice amount. Cash flows relating to short-term receivables are not discounted because the effect of discounting is usually immaterial. i Accordingly, accounts receivable shall be measured initially at face amount or original invoice amount. Subsequent measurement In accordance with PFRS 9, paragraph 5.2.1, after initial recognition. accounts receivale shall be measured at amortized cost. The amortized cost is actually the net realizable value of accounts reecivable. The term amortized cost has more relevance in long-term note receivable. Thus, the term net realizable value is preferably used in relation to accounts receivable. The net realizable value of accounts receivable is the amount of cash expected to be collected or the estimated recoverable amount, 118Net realizable value ‘The initial amount recognized for accounts receivable sha} Pe eeduced by adjustments which in the ordinary course ¢; business will reduce the amount recoverable from th. customer. This is based on the established basic PIT iple that asser, shall not be carried at above their recoverable amount ~ realizable value of traq, | i ting the net Accordingly, in estimating are made: asunis receivable, the following deductions ‘a. Allowance for freight charge b. Allowance for sales return c. Allowance for sales discount d. Allowance for doubtful acccounts Terms related to freight charge In order to give proper accounting recognition to freight charge in relation to accounts receivable, the following terms chargé pe understood - OB destination, FOB shipping point, freight collect and freight prepaid. ‘The term FOB destination means that ownership of the goods purchased is vested im the buyer upon receipt thereof ‘Accordingly, the seller shall be responsible for the freight charge up to the point of destination. The term FOB shipping point means that ownership of th: goods purchased is vested in the buyer upon shipment thereof. Thus, it is incumbent upon the buyer to pay for the transportation charge from the point of shipment to the pat! of destination. The term freight collect means that freight charge on th soods shipped is me ue paid The common Niven Shall collect the e from the buyer. Thus, under thi: i i actually paid by the buyer. ey the feta ane The term freight prepaid means that frei the goods shipped is already paid by the pies canyonAccounting for freight charge Sanstiness goods are sold FOB destination but shipped jah ear the unde retanding that the buyer will pay r the large and ded Coa ‘uct the same when remittance On the part of the seller, the frei; i é ight charge is recorded by Sune freight out and crediting allowance for freight charge. For example, an entity has a P100,000 account receivable at the end of accounting period. The terms are 2/10, n/30, FOB destination and freight collect. The customer paid freight charge of P5,000. 1. To record the sale: Accounts receivable 100,000 Freight out 5,000 Sales 100,000 Allowance for freight charge 5,000 2. To record the collection within the discount period: Cash 93,000 Sales discount 2,000 Allowance for freight charge 5,000 Accounts receivable 100,000 Allowance for sales returns The measurement of accounts receivable shall also recognize the probability that some customers will return goods that are unsatisfactory or will make other claims requiring reduction in the amount due as in the case of shipment shortages and defects. For example, an amount. of P50,000 of the total accounts receivable at year-end represents selling price of goods that will probably be returned. The journal entry to recognize the probable return is: Sales return 50,000 Allowance for sales return 60,000Sales discount Entities usually offer cash discounts to credit customers cash discount is a reduction from an invoice price by Teaion of prompt payment. A cash discount is known as sales discount on the part o teh seller and a purchase discount on the part of the buyer, A cash discount may be expressed as 6/10, n/30, 1h, means that the customer is entitled to a 5% discouny ;; payment is made in 10 days from the invoice date. If the customer fails to pay within the 10-day discount peri, the gross amount of the invoice price must he paid within 3p days from the invoice date Methods of recording credit sales a. Gross method — Phe accounts receivable and sales ay recorded at gross amount of the invoice. This is the commo; and widely used method because it is simple to apply. b. Net method — The accounts receivable and sales ax recorded at net amount of the invoice, meaning the invoice price minus the cash discount. Illustration - Gross method 1. Sale of merchandise for P100,000, terms 5/ 10, n// 30. Accounts receivable 100,000 Sales 100,000 2. Assume collection is made within the discount period. Cash 95,000 Sales discount 5,000 Accounts receivable 100,00) 8. Assume collection is made beyond the discount peria!- Cash 100,000 Accounts receivable 100,000 All rights belongs to respective authors I e consider buving the o: gina’| | | | t Illustration - Net method 1. Sale of merchandise for P 100,000, terms 5/10, n/30. Accounts receivable Sales a woe? ro. . Assume collection is made within the discount period. Cash 95,000 Accounts receivable , 95,000 3. Assume collection ig made beyond the discount period. Cash 100,000 Accounts receivable 95,000 Sales discount forfeited 5,000 The sales discount forfeited account is classified as other income. Allowance for sales discount If customers are granted cash discounts for prompt payment, then, conceptually estimates of cash discounts on open accounts at the end of the period based on past experience shall be made. For example, of the accounts receivable of P1,000,000 at the end of the period, it is reliably estimated that discounts to be taken will amount to P50,000. The adjustment to record the expected sales discount is: Sales discount 50,000 Allowance for sales discount 50,000 The adjustment may be reversed at the beginning of the next period in order that discounts can then be charged normally to sales discount account. 117Accounting for bad debts Business entities sell on credit rather than only for cash increase total sales and thereby increase income, te However, an entity that sells on credit assumes the righ | some customers. will not pay their accounts. ay | | When an account becomes uncollectible, the entity, | sustained a bad debt loss. This loss is simply one of the eit | of doing business on credit. | ‘Two methods are followed in accounting for this bad ety loss, namely: 1. Allowance method 2. Direct writeoff method Allowance method ‘The allowance method requires recognition of a bad debt if the accounts are doubtful of collection. The journal entry to recognize the doubtful accounts is: Doubtful accounts Xx ‘Allowance for doubtful accounts F The “allowance for doubtful accounts” is deduction from accounts receivable. If the doubtful accounts are subsequently found to te worthless or uncollectible, the accounts are written off a follows: Allowance for doubtful accounts 0 xXx Accounts receivable aX Generally accepted accounting principles require the use ¢ the allowance method because it conforms with the matchia! principle. Moreover, accounts receivable would be properly measit®) at net realizable value.Recoveries of accounts written off. The collection is then recorded no i a crediting accounts receivable. mally by debiting cash an The recharging of the customer's account is usually followed because it 1s an evidence of the attempt of the customer to reestablish his credit with the entity, What account should be credited when the customer's account is recharged? : The generally accepted approach is to simply reverse the original entry of writeoff regardless of whether the recovery is during the year of writeoff or subsequent thereto. Illustration - Allowance method 1. Accounts of P30,000 are considered doubtful of collection. Doubtfulaccounts 30,000 Allowance for doubtful accounts 30,000 2. The accounts are subsequently discovered to be’ worthless or uncollectible. Allowance for doubtful accounts 30,000 Accounts receivable 30,000 3. The same accounts that are previously written off are unexpectedly recovered or collected. Accounts receivable 30,000 Allowance for doubtful accounts 30,000 Cash 30,000 Accounts receivable ‘ *30;000 119Direct writeoff method The direct writeoff method requires recognition of a bad det loss only when the accounts proved to be worthless ‘uncollectible. Worthless accounts are recorded by debiting bad debts and crediting accounts receivable. If the accounts are only doubtfiy ¢ collection, no adjustment is necessary. This approach is often used by small businesses because iti, simple to apply. ‘As a matter of fact the Bureau of Internal Revenue recognine, only this method for income tax purposes. However, the direct writeoff method violates the matching principle because the bad debt loss is often recognized in late, accounting period than the period in which the sales reveny, .vas recognized. The direct writeoff method is not permitted under IFRS. t Or ilustration - Direct writeoff method 1. Accounts of P30,000 are considered doubtful of collection, No entry is necessary. 2. The accounts proved to be worthless. Bad debts 30,000, Accounts receivable 30,000 3. The same accounts that are previously written of a worthless are recovered or collected. Accounts receivable 30,000 Bad debts 30,000 Coa 30,000 Accounts receivable 90,000 Ifthe recovery is subsequent to the year of writeoff and the diré*| vrriteofl method is used, Une recovery taay sate be ael ( to other income. 120 Meo oda nSDoubtful accounts in the income statement 1. Distribution cost If the granting of credit and collection of accounts are nder the charge of the sales manager, doubtful accounts shall be considered ag distribution cost, 2. Administrative expense If the ranting of credit and collection of accounts are under the charge of an officer other thon sales manager, doubtful accounts shall be considéred as administrative expense. In the absence of any contrary statement, doubtful accounts shall be classified as administrative expense. 121QUESTIONS 1, Define receivables. 2. Explain the classification and presentation of receivables in the statement of financial position 3, Explain the treatment of customers’ credit balances. 4, Explain the initial and subsequent measurement of trade accounts receivable. 5. Explain the two methods of recording accounts receivable and credit sales. 6. Explain the allowance method of accounting for bad debts, 1. Explain the direct writeoff emthod of accounting for bad debts. 8, Give the proforma entry under the allowance method for | each of the following: a. Doubtful accounts b. Accounts receivable proved to be worthless c. Recovery of accounts previously written off 9, Give the proforma entry under the direct writeoff methoi for each of the following: a, Doubtful accounts b. Accounts receivable proved to be worthless c. Recovery of accounts previously written off 10. Explain the presentation of doubtful accounts in th’ income statement.PROBLEMS Problem 4-1 (14a) Dreamer Company reported the “Rec . “ a debit balance of P2,000,000 at yer ables” account with The allowance for doubtful account i f Fa oa eo uunts had a credit balance of Subsidiary details revealed the following: Trade accounts receivable 775,000 Trade notes receivable 100,000 Installments receivable, normally due lyeartotwoyears 300,000 Customers’ accounts reporting credit balances arising from sales return (30,000) Advance payments for purchase ofmerchandise 150,000 Customers’ accounts reporting credit balances arising from advance payments (20,000) Cash advance to subsidiary 400,000 Claim from insurance entity 15,000 Subscriptions receivable due in 60 days 300,000 Accrued interest receivable ___10,000 2,000,000 Required: a. Prepare one compound entry to reclassify the receivables account. b. Compute the amount to be presented as “trade and other receivables” under current assets. c. Indicate the classification and presentation of the other items excluded from “trade and other receivables”, 128Problem 42 (IAA) i i pe following T-accou Credible Company provided t count summarizing the transactions affecting the accounts receivable for the current year: accounts Receivable customers 5,300,009 ee Jan, 1 balance {00,000 | Collections from Charge sales 6,000,000 | Writeott 35,009 ‘Shareholders’ Merchandise returns 40,000 ‘subscriptions 200,000 | Allowances to custome Deposit on contract 320,000; fer shipping damages 25,000 Claims-against common | collections on caxrior claims 40.000 “arrier for damages 100,000 Collection on subscriptions 50,00) 10Us from employees 10,000 Cash advance to affiliates 100,000 lAdvahoes to a supplier 50,000) Required: a. Compute the correct amount of accounts receivable. b, Prepare one com] .d entry to adjust the accounts receivable, ¢. Compute the amount to be presented as “trade and other receivables” under current assets. d. Indicate the classification and presentation of the other items. Problem 4-8 (ACP) ny sold merchandise on account for 500,000. The terms are 3/10, n/30. The related freight charge amounted to P10,000. The account was collected within the discount period. Affectionate Compal Required: Prepare journal entries to record the trai tio! following freight terms: eeu under the 1. FOB destination and freight collect 2. FOB destination and freight prepaid 3. FOB shipping point and freight collect 4, FOB shipping point and freight prepaidProblem 4-4 (ACP) Fiancee Company records.sales return during the year as a credit to accounts receivable. However, at the end of the accounting period, the entity estimates the probable sales return and records the same by means of an allowance account, The following transactions occurred in summary form: 1. Sale of merchandise on account, 2/10, n/30 4,000,000 2. Collection within the discount period 1,470,000 3. Collection beyond the discount period 1,000,000 4, Sales return granted 100,000 5. Sales return estimated at the end of the year 20,000 Required: Prepare journal entries to record the transactions. Problem 4-5 (IAA) On June 15, 2020, Romela Company sold 190 air conditioning units. The sale price for each unit is P45,000. All of sales are subject to terms 2/10, n30. The entity used the gross method of accounting for accounts receivable. Required: 1. Prepare journal entry to record the sale. 2. Prepare journal entry to record receipt of the payment assuming the correct amount was received on June 25, 2020. 3. Prepare the journal entry to record receipt of the payment assuming the correct amount was received on July 10, 2020. 125Problem 4-6 (IAA) rime Company sold 50 ai, On February 14, 2020: for each unit is P50,009 conditioning units. The sale price terms 2/10, 030. The entity si bect to All of the tee ihod af ting for accounts receivable | used the net method of accoun' Required: | 1. Prepare the journal entry to record the sale. i 2. Prepare the journal entry to record receipt of the payment | assuming the correct amount was received on February | 24, 2020. 3. Prepare the journal entry to record receipt of thé payment, assuming the correct amount was received on March 10, 2020. Problem 4-7 (IAA) Raven Company started business in March 2020. Sales for the first year totaled P4,000,000. The entity priced its merchandise to yield a 40% gross profit based on sales. Industry statistics suggest that 10% of the merchandise sold to customers will be returned. The entity estimated sales returns based on the industry average. During the year, customers returned goods with sale price of P300,000. foe Required: Prepare journal entries to record | ent: sales, sales returns and the year-end adjusting entry for estimated sales returns.Problem 4-8 (AICPA Adapted) Valiant Company re; . ported the foll , receivables at year-end: lowing analysis of current Trade accounts receivable Allowance for doubtful accounts tnogoes Claim against shipper for goods lost : in transit in November 300,000 Selling price of unsold goode sent by Valiant on consignment at 150% of cost and not included in ending inventory 600,000 Security deposit on lease of warehouse 200, 000, Total 3,000,000 What total amount should be reported as current trade and other receivables? a. 2,200,000 b, 2,490,000 c. 2,300,000 d. 3,000,000 Problem 4-9 (AICPA Adapted) Jinx Company provided the following information for the current year in relation to accounts receivable: Accounts receivable, January 1 1,300,000 Credit sales 5,500,000 Sales return 150,000 Accounts written off 100,000 Collections from customers 5,000,000 50,000 Estimated future sales return on December 31 Estimated uncollectible accounts per aging at year-end 250,000 What amount should be reported as net realizable value of accounts receivable on December 31? 1,550,000 1,260,000 1,300,000. 1,500,000 aeop 127Problem 4-10 (AICPA Adapted) Rapture Company had the following information for th, current year relating to accounts receivable: Accounts receivable, January 1 1,300,069, Credit sales Collections from customers, excluding recovery Accounts written off Collection of accounts written offin prior year, customer credit was not reestablished Estimated uncollectible receivables per aging at December 31 165,004 What is the balance of accounts receivable before allowanc, for doubtful accounts on December 31? a. 1,825,000 b. 1,850,000 ¢. 1,950,000 d. 1,990,000 Problem 4-11 (PHILCPA Adapted) ‘At year-end, Harem Company reported accounte receivable of P8,200,000 with the following analysis: Accounts known to be worthless 100,000 Advance payments on purchase orders 400,000 Advances to subsidiary 1,000,000 Customers’ accounts reporting credit balances arising from sales returns (600,000) Trade accounts receivable 3,500,000 Subscription receivable due in 30 days 2,200,000, ‘Trade installmenta receivable due 1 - 18 months, including unearned finance charge of P50,000 850,000 Trade accounts receivable from officers, due currently 150,000 ‘Trade accounts on which postdated checks are held and no entries were made on receipt of checks 200000 What is the correct balance of trade accounts receivable? a. 4,660,000 b. 4,700,000 c. 4,150,000 d. 4,050,000Problem 4-12 (IAA) Von Company Provided the following data for the current year in relation to accounts receivable: Debits January 1 balance after deducting ereditbalance P30,000 530,000 Charge sales ampro0o Charge for goods out on consignment “50,000 Shareholders’ subscriptions 1,000,000 Accounts written off but recovered "10,000 Cash paid to customer for January 1 credit balance 25,000 Goods shipped to cover January 1 credit balance 5,000 Deposit on long-term contract 500,000 Claim against common carrier 400,000 Advances to supplier 300,000 Credits Collections from customers, including overpayment of P50,000 5,200,000 Writeoff 35,000 Merchandise returns 25,000 Allowances to customers for shipping damages 15,000 Collection on carrier claim 50,000 Collection on subseription 200,000 1. What amount should be reported as accounts receivable on December 31? a. 565,000 b.- 595,000 c. 545,000 d. 495,000 2. What total amount of trade and other receivables should be reported under current assets? a, 1,745,000 b. 2,045,000 c. 1,245,000 d. 1,195,000 8. What total amount of other receivables should be reported under noncurrent assets? a. 1,650,000 b. 1,150,000 ¢, 1,300,000 a. 1,600,000 129Problem 4-13 (IAA) Wonder Company provided the following transaction, affecting accounts receivable during the current year: 5,900,009 Sales—cash and credit Cash received from credit customers, allof whom unt feature of the took advantage of the disco i credit terms 4/10,n/30 3,024,000 | Cash received from cash customers 2,100,008 | Accounts receivable written off.as worthless 50,000} Credit memorandum issued to credit customers for sales returns and allowances 250,000 Cash refunds given to cash customers for sales returns and allowances 20,000 Recoveries on accounts receivable written offas uncollectible in prior periods not included in cash received from credit customers 80,000 Balances on January 1 Accounts receivable 950,000 100,000 Allowance for doubtful accounts The entity provided for uncollectible accounts by crediting allowance for doubtful accounts in the amount of P70,000 for the current year. 1. What amount should be reported as accounts receivable on December 31? a. 1,300,000 b. 1,426,000 c. 1,280,000 d. 1,220,000 2. What amount should be reported as accounts on December 31? pce a. 120,000 b.- 200,000 ¢. 250,000 d. 170,000Problem 4-14 Multiple choice (AA) 1, Trade receivables are classi : classified t f reasonably expected to ie aie current assets i a. Within one year. b. Within the normal operating cycle. ec. Within one year or withi i an * whichever is shorter. ihe operating ovete d. Within one year or within the operating cycle, whichever is longer. pe . Nontrade receivables are classified as current assets only if reasonably expected to be realized in cash a, Within one year or within the operating cycle, whichever is shorter. b. Within one year or within the operating cycle, whichever is longer. ce Within the normal operating cycle. 4. Within one year, the length of the operating cycle notwithstanding . Credit balances in accounts receivable are classified as ~ a. Current liabilities b. Part of accounts payable c. Long term liabilities d. Deduction from accounts receivable 4. Which of the following does not change the balance in accounts receivable? a. Return on credit sales b. Collection from customers c. Bad debt expense adjusting entry d. Writeoff 5. Which is recorded by a credit to: accounts receivable? a. Sale of inventory on account b. Estimating the allowance for doubtful accounts c. Estimating annual sales returns d. Writeoff of accounts receivablea a 10. . Which accounting ). In recording ¢: principle primarily support the use of Mligwance for doubtful accounts? a. Continuity principle | b. Full disclosure principle c. Matching principle d. Conservatism Why is the allowance method preferred over the direc writeoff method of accounting for bad debts? a. Allowance method is used for tax purposes b. Estimates are used ; | c. Determining worthless accounts under direct writeoff method is difficult to do a. Improved matching of bad debt: expense with revenue The entry debiting accoun' allowance for doubtful accounts a. Acustomer pays an account balance. | b. A customer defaults on the account. c, A previously defaulted customer pays the balance. 4. Estimated uncollectible accounts are too low. ash discounts related to accounts receivable, which is more theoretically correct? ; ts receivable and crediting would be made when a. Net method b. Gross method ' ce. Allowance method d. All three methods are theoretically correct All of the following are problems associ i measurement of accounts receivable, — with Oe Uncollectible accounts pene ‘ash discounts under the Allowance granted inalacthiod, pp eeProblem 4-15 Multiple choice (AICPA Adapted) 1. Which method of i ‘i zs aecrual accounting? ae bad debt loss is consistent with a. Allowance method b. Direct writeoff method c. Percent of sales method d. Percent of accounts receivable method 2. When the allowance method is used, the entry to record the writeoff of a specific account would Decrease both accounts receivable and the allowance Decrease accounts receivable and increase allowance Increase both accounts receivable and the allowance |. Increase accounts receivable and decrease the allowance Bo sp 3. Under the allowance method, the journal entry to record the writeoff of a specific uncollectible account a. Affects neither net income nor working capital ». Affects neither net income nor accounts receivable c. Decreases both net income and working capital d. Decreases both net income and accounts receivable 4. Under the allowance method, the entries at the time of collection of an account previously written off would a. Decrease the allowance for doubtful accounts b. Increase net income c. Have no effect on the allowance for doubtful accounts d. Have no effect on net income 5. Collection of accounts receivable previously written off results in an increase in cash and an increase in a. Accounts receivable b, Allowance for doubtful accounts ¢. Bad debt expense d. Retained earnings 133