# Entries for uncollectible receivables, using allowance method Journalize the following transactions in the accounts of Sedona Interiors Company, a restaurant supply company that uses the allowance method o f accounting for uncollectible receivables: May 1. Sold merchandise on account to Beijing Palace Co., $18,900. The cost of the merchandise sold was$11,200. Aug. 30. Received $8,000 from Beijing Palace Co. and wrote off the remainder owed on the sale of May 1 as uncollectible. Dec. 8. Reinstated the account of Beijing Palace Co. that had been written off on August 30 and received$10,900 cash in full payment.

### Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

### Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

#### Solutions

Chapter
Section
Chapter 9, Problem 9.4EX
Textbook Problem

## Entries for uncollectible receivables, using allowance methodJournalize the following transactions in the accounts of Sedona Interiors Company, a restaurant supply company that uses the allowance method o f accounting for uncollectible receivables: May 1. Sold merchandise on account to Beijing Palace Co., $18,900. The cost of the merchandise sold was$11,200. Aug. 30. Received $8,000 from Beijing Palace Co. and wrote off the remainder owed on the sale of May 1 as uncollectible. Dec. 8. Reinstated the account of Beijing Palace Co. that had been written off on August 30 and received$10,900 cash in full payment.

Expert Solution
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 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.

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.

To journalize: The transaction of Company S.

### Explanation of Solution

Prepare the journal entry to record the sale of merchandise on account, and the cost of goods sold.

 Date Particulars Debit Credit May 1 Accounts receivable – Company B $18,900 Sales$18,900 (To record sale of merchandise on account) May 1 Cost of merchandise sold $11,200 Merchandise inventory$11,200 (To record the cost of goods sold)

Table (1)

Sale on account increases accounts receivable and sales revenue account. Hence, an increase in accounts receivable (asset account) is debited with $18,900and an increase in sales revenue (stockholders’ equity account) is credited with$18,900.

Cost of goods sold is $11,200. Thus the expense incurred must be recognized by increasing cost of goods sold account and the merchandise inventory which is sold out should be decreased to record the inventory which is sold out. Hence, an increase in Cost of goods sold (expense account) is debited with$11,200 and a decrease in Merchandise inventory (asset account) is credited with $11,200. 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 August 30 Cash$8,000 Allowance for doubtful accounts $10,900 Account receivable – Company B$18,900 (To record cash collection and write-off of uncollectible account receivable )

Table (2)

To record the collection of cash on account, cash account must be increased and accounts receivable must be decreased by $8,000. To record this write-off of uncollectible receivables of$10,900 ($18,900$8,000)   under allowance method, both allowance for doubtful accounts and accounts receivable must be decreased by \$10,900

### Want to see the full answer?

Check out a sample textbook solution.See solution

### Want to see this answer and more?

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

See solution