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. Prepare the journal entry to record the collection of cash and write-off of uncollectible accounts, under direct write-off method. Date Particulars Debit Credit June 2 Cash $1,200 Bad debt expense $4,000 Account receivable– Person M $5,200 (To record cash collection and write-off of uncollectible account receivable ) Table (1) To record the collection of cash on account, cash account must be increased and accounts receivable must be decreased by $1,200. To record this write-off of uncollectible receivables under direct write-off method, bad debt expense must be recognized as well as increased, and accounts receivable must be decreased by $4,000. Hence, Increase in cash (asset account) is debited with $1,200 Increase in bad debt expense (decreases the stockholders’ equity accounts) is debited with $4,000, and Decrease in accounts receivable (asset account) is credited with ( $ 1 , 200 + $ 4 , 000 ) $5,200

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Journalize the collection of $1,200 cash and write-off of Person M’s $4,000uncollectible accounts, using direct write-off method.

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Financial Accounting

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Journalize the collection of $1,200 cash and write-off of Person M’s $4,000uncollectible accounts, using direct write-off method.

Solution Summary: The author explains the direct write-off method, which is used to write off uncollectible accounts by debiting bad debt expense and crediting accounts.

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Journalize the collection of $1,200 cash and write-off of Person M’s $4,000uncollectible accounts, using direct write-off method.

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