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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Direct write-off method

Journalize the following transactions, using the direct write-off method of accounting for uncollectible receivables:

Apr. 15. Received $800 from Jean Tooley and wrote off the remainder owed of $1,200 as uncollectible.
Aug. 7. Reinstated the account of Jean Tooley and received $1,200 cash in full payment.

To determine

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.

To journalize: The given transactions, using direct write-off method of accounting for uncollectible.

Explanation

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
April 15 Cash $800  
  Bad debt expense $1,200  
       Account receivable – Person JT   $2,000
  (To record cash collection and write-off of uncollectible account receivable )    

Table (1)

Description:

To record the collection of cash on account, cash account must be increased and accounts receivable must be decreased by $800.

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 $1,200. Hence,

  • Increase in cash (asset account) is debited with $800
  • Increase in bad debt expense (decreases the stockholders’ equity accounts) is debited with $1,200, and
  • Decrease in accounts receivable (asset account) is credited with ($800+$1,200) $2,000.

Reinstate the account of Person JT and record the collection of cash on account

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