Question

Hovak Company has credit sales of \(4,500,000 for year 2017. At December 31, 2017, the company’s Allowance for Doubtful Accounts has an unadjusted debit balance of \)3,400. Hovak prepares a schedule of its December 31, 2017, accounts receivable by age. On the basis of past experience, it estimates the percent of receivables in each age category that will become uncollectible. This information is summarized here.

Required

3. On July 31, 2018, Hovak concludes that a customer’s $3,455 receivable (created in 2017) is uncollectible and that the account should be written off. What effect will this action have on Hovak’s 2018 net income? Explain.

Short answer

Answer

No effect on the net income.

Step-by-step solution

Step-by-Step SolutionStep 1: Meaning of Accounts Receivables

Account receivable is the amount of money that is receivable from the customer after being goods delivered, and this is the current assets of the business

Detailed explanation

In the financial statements of Hovak for the year 2018, the amount of net income will not differ due to the uncollectible $3,455.

The amount of $3,455 as uncollectible will not directly affect the net income of the Hovaks in the year 2018. Since as per the GAAP’s journal entry, the amount of allowance for doubtful debt will be posted on the debit side, and the amount of accounts receivables will be reported on the credit side of the journal book.