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Financial & Managerial Accounting
Found in: Page 342
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

Explain why writing off a bad debt against the Allowance for Doubtful Accounts does not reduce the estimated realizable value of a company’s accounts receivable.

The write-off method does not affect the amount of realizable value of a company’s accounts receivables.

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Step by Step Solution

Step-by-Step SolutionStep 1: Introduction

While recording a journal entry of bad debt, and an organization uses the write-off method, the allowance for doubtful accounts is debited, and the amount of accounts receivables is credited.

Step 2: Reason

By using the write-off method of accounting, an organization minimizes its amount of accounts receivables and the allowance balance for doubtful accounts by entering the exact or the same amount. It signifies that the net realizable value between them remains unchanged.

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