Use the information below to answer the following question(s):Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts.Increase = I Decrease = D No Effect = NAFurs Co. uses the allowance method. On June 20, Furs wrote off an uncollectible account in the amount of $2,000. On September 1, the company collected a receivable that it had previously written off. How would the entry dated September 1 to reinstate the receivable (not the collection)affect the elements of the financial statements?

Question

What will be an ideal response?

Answer 1

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The reinstatement of the receivable increases assets (accounts receivable) and decreases assets (by increasing the allowance for doubtful accounts, a contra asset account). Since one asset increases and another asset decreases by the same amount, there is no effect on total assets. There is also no net effect on any of the elements of the financial statements. The statement of cash flows is not affected because the transaction being recorded is to reinstate the receivable (not collect the receivable).