Final answer:
A bankrupt customer's accounts receivable is eliminated when the company records a write-off, recognizing that the debt is uncollectible. Banks go bankrupt when their liabilities surpass their assets, leading to a negative net worth as shown on their balance sheet.
Step-by-step explanation:
When a bankrupt customer's accounts receivable need to be eliminated, this typically occurs when the company records an entry to write off the debt. In accounting, this means that the company has deemed the accounts receivable to be uncollectible. Reflecting the reality of a bankrupt customer's inability to pay, the company will make an adjusting entry to remove the amount from the accounts receivable balance and recognize a loss on its income statement.
A bank goes bankrupt when it has a negative net worth, which occurs when its liabilities exceed its assets. This financial situation is evident through a review of the bank's balance sheet. The balance sheet is crucial as it provides a snapshot of an entity's financial condition at a specific point in time.