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Financial & Managerial Accounting

13th Edition
Carl Warren + 2 others
ISBN: 9781285866307

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BuyFindarrow_forward

Financial & Managerial Accounting

13th Edition
Carl Warren + 2 others
ISBN: 9781285866307
Textbook Problem

Allowance method

Journalize the following transactions, using the allowance method of accounting for uncollectible receivables:

Oct. 2. Received $600 from Rachel Elpel and wrote off the remainder owed of $1,350 as uncollectible.

Dec. 20. Reinstated the account of Rachel Elpel and received $1,350 cash in full payment.

(a)

To determine

Allowance method

It is a method for accounting bad debt expense, where uncollectible accounts receivables are estimated and recorded at the end of particular period.

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.

Write-off:

Write-off refers to deduction of a certain amount from accounts receivable, when it becomes uncollectible.

To journalize: The collection of $600 cash and write-off of Person RE’s $1,350 of remaining uncollectible accounts, using allowance method.

Explanation

To record the collection of cash on account, cash account must be increased and accounts receivable must be decreased by $600.

To record this write-off of uncollectible receivables under allowance method, both allowance for doubtful accounts and accounts receivable must be decreased by $1,350. Hence,

  • Increase in cash (asset account) is debited with $600
  • Dec...

(b)

To determine

To reinstate: The account of Person RE and record the collection of cash on account.

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