Question

Jasper Company uses the allowance method to account for bad debts. During 2018, the company recorded bad debt expense of $9,000 and wrote off as uncollectible accounts receivable totaling $5,000. These transactions caused a decrease in working capital (current assets minus current liabilities) of:

Answer 1

Answer:

Decrease in Working Capital amounts to $9,000

Explanation:

Working Capital is the difference among the current assets like accounts receivable, cash and inventories and the current liabilities like the account payable of the company.

So, in this case,

Reporting the bad debts expense, the entry would be:

Bad debts expense A/c................................Dr  $9,000

      Allowance for bad debts A/c....................Cr  $9,000

When writing of the uncollectible accounts receivable, the entry would be:

Allowance for bad debts A/c....................Dr  $5,000

            Accounts Receivable A/c...................Cr  $5,000

Therefore, the net decrease in working capital will be computed as:

Net decrease in working capital = $9,000 + $5,000 - $5,000

Net decrease in working capital = $9,000