FSA synthesis problem (Schweser pg 334). Additional info states customer that accounts for $5,000 in a/r has filed b/k. If this were the case, you would simply debit the allowance account and credit the receivable ending up with no adjustment to net a/r. Their answer pulls out the $5,000 from the a/r account. I think that is incorrect. Any thoughts?
in this example, they don’t show or mention any allowance account. i would take this i guess to mean they assumed all were going to be good AR, so by 5k of it going bad, then you just subtract it from the 20k of AR that you originally had. that said, where does a company show their allowance for bad debt- would it or could it be a footnote somewhere in this problem saying “allowance for bad debt = 5k” and then it’d be just like you stated, you’d take that allowance to zero and the net/net on AR would be 0 so no adjustment necessary? you think they’d go that far in a question? i think here since it didn’t give any info on allowances for bad receivables, you’d just take it straight out of AR like they did with the simple adjustment.
Fair enough. I just assumed as they did in #3 of the same set of questions that the a/r they show on the balance sheet was a net number and you have to have some allowance account if you have receivables. I think most f/s simply say “net” after the a/r line item. Let’s hope any question has more detail if they ask for an adjustment. Thanks for the response bannisja.