Jones Co.sells on credit and maintains an allowance for doubtful accounts equal to 2% of the company's $3,450,000 receivables balance.Due to a cash shortfall,Jones sells $275,000 of its receivables with recourse to Ninth National Bank,and the bank withholds $12,000 from the factoring proceeds to cover possible noncollections.If the noncollections eventually amount to $15,000,the entry on Jones' books when notified of this fact would be:

Question

Quizplus · Accepted Answer

When Jones Co. is notified of the actual noncollections amounting to $15,000, it must adjust its accounts to reflect the actual loss. The bank had withheld $12,000 for possible noncollections, so this amount is credited to "Due from Ninth National Bank" as it is now being used to cover part of the actual noncollections. The additional $3,000 loss (the difference between the $15,000 actual noncollections and the $12,000 withheld by the bank) is covered by cash, reflecting the additional amount Jones Co. must absorb beyond what was withheld by the bank.

Jones CoSells on Credit and Maintains an Allowance for Doubtful Accounts