You are required to provide an explanation to the accountant as to the appropriate treatment of the
Question:
You are required to provide an explanation to the accountant as to the appropriate treatment of the following events:
(i) On 28 February 2011 a company’s financial statements for the year ended 31 December 2010 were
authorized for issue. The company sells some products on credit to a customer X before 31 December 2010.
At 31 December 2010 the company’s management had no doubt about the customer X’s ability to pay the outstanding trade receivable of $200,000. However, in February 2011, before the financial statements were authorized for issue, the company is informed that customer X is going into liquidation because it has significant debt, has virtually no cash inflows and its accounting records are poorly maintained. Because of this, the trade receivables are deemed worthless.
Intermediate Accounting Volume 1
ISBN: 978-1119496496
12th Canadian edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Irene M. Wiecek, Bruce J. McConomy