In: Accounting
Explain how each of the following is presented in (1) a multiple-step income statement and (2) a statement of cash flows a.Sale of marketable securities at a loss b. adjusting entry to create (or increase) the allowance for doubtful accounts c. Entry to write off an uncollectable account against the allowance, d. Adjusting entry to increase the balance in Marketable securities account to a higher market value (assume these investments are classified as available for sale securities)
a. Sale of Marketable Securities at loss
Income Statement
The gain or loss of the sale is recorded on the income statement under the operating income segment as a line item denoted as "Gain (Loss) on Trading Securities."
Statement of Cash Flow
It is shown under "Cash flow from Investing Activity"
b. Adjusting entry to create (or increase) the allowance for doubtful accounts
Date | Account Title | Debit | Credit |
June 30, 2017 | Bad Debts Expense | xxxx | |
Allowance for Doubtful Accounts | xxxx |
Income Statement
The only impact that the allowance for doubtful accounts has on the income statement is the initial charge to bad debt expense when the allowance is increased.
Statement of Cash Flow
No treatment in direct method. The indirect method starts with net income for the quarter. Then you subtract or add parts of the income statement that don't involve cash i.e. allowance for doubtful debts.
c. Entry to write off an uncollectable account against the allowance
Income Statement
There will be no impact on income statement.
Statement of Cash Flow
Writing bad debts off involves no cash, so there is no treatment for it on the cash flow statement
d. Adjusting entry to increase the balance in Marketable securities account to a higher market value
Income Statement
No impact as unrealised gain or loss on mark to market are shown in stakeholder's equity.
Statement of Cash Flow
The cash flow statement would show the changes in the fair market value of the investments as a reconciling item in the operating section of the statement.