Journalizing transactions using the direct write-off method versus the allowance method During August 2018, Lima Company recorded the following: Sales of 5133,300 ($122,000 on account; $11,300 for cash). Ignore Cost of Goods Sold. Collections on account, $106,400. Write-offs of uncollectible receivables, $990. Recovery of receivable previously written off, $800. Requirements Journalize Lima’s transactions during August 2018, assuming Lima uses the direct write-off method. Journalize Lima’s transactions during August 2018, assuming Lima uses the allowance method.
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Journalizing transactions using the direct write-off method versus the allowance method
During August 2018, Lima Company recorded the following:
- Sales of 5133,300 ($122,000 on account; $11,300 for cash). Ignore Cost of Goods Sold.
- Collections on account, $106,400.
- Write-offs of uncollectible receivables, $990.
- Recovery of receivable previously written off, $800.
Requirements
- Journalize Lima’s transactions during August 2018, assuming Lima uses the direct write-off method.
- Journalize Lima’s transactions during August 2018, assuming Lima uses the allowance method.
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