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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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Chapter
Section
BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

DIRECT WRITE-OFF METHOD Williams & Hendricks Distributors uses the direct write-off method in accounting for uncollectible accounts.

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REQUIRED

Record these transactions in general journal form.

To determine

Journalize the given transactions using direct write-off method for uncollectible accounts.

Explanation

Accounts receivable:

Accounts receivable refers to the amounts to be received within a short period from customers upon the sale of goods and services on account. In other words, accounts receivable are amounts customers owe to the business. Accounts receivable is an asset of a business.

Bad debt expense:

Bad debt expense is an expense account. The amounts of loss incurred from extending credit to the customers are recorded as bad debt expense. In other words, the estimated uncollectible accounts receivable are known as bad debt expense.

Direct write-off method:

This method does not make allowance or estimation for uncollectible accounts, instead this method directly write-off the actual uncollectible accounts by debiting bad debt expense and by crediting accounts receivable. Under this method, accounts would be written off only when the receivables from a customer remain uncollectible.

Allowance method:

It is a method for accounting bad debt expense, where amount of uncollectible accounts receivables are estimated and recorded at the end of particular period. Under this method, bad debts expenses are estimated and recorded prior to the occurrence of actual bad debt, in compliance with matching principle by using the allowance for doubtful account.

Journalize the given transactions using direct write-off method for uncollectible accounts:

Table (1)

Working note 1:

Calculate the amount of bad debt expense on June 3:

Bad debt expense = [Sold merchandise on account to M Merchants Received cash from M Merchants ]=[$17,500$10,000]=$7,500

Working note 2:

Calculate the amount of bad debt expense on September 9:

Bad debt expense = [Sold merchandise on account to U Unicorns Received cash from U Unicorns]=[$14,300$8,000]=$6,300

Justification on February 18th Transaction:

  • Accounts receivable is a current asset account and it increases the value of asset

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