Chapter nine entitled “Credits” (2014, p. 407) further explains: “The previous adjusting entry affects the income statement and balance sheet.” Ultimately, adjusting trade receivables reduces the value to $360,000; calculated as $400,000 - $40,000 = $360,000. This new value is called the net realizable value of accounts receivable for the period ending December 31. Part Two - Depreciation To state the value of an asset, in the balance sheet, depreciation is used to show the real value of the asset. There are three methods for estimating depreciation expenses; straight line method, output units method and double decreasing balance. Furthermore, with the straight-line method the cancellation is applied directly to the customer's account which has become uncollectible. On the other hand, the units of output and double decreasing balance methods are credited to a reserves account. This provision for bad debts is created to record the estimate of bad debts. Both write-offs and the allowance for bad debts are used to calculate the true value of an asset on the balance