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Chapter 8: Q14RQ (page 465)

When using the allowance method, what account is debited when writing off uncollectible accounts? How does this differ from the direct write-off method?

Short Answer

Expert verified

Answer

Journal entries:

Method

Accounts and Explanation

Debit $

Credit $

Allowance method

Allowance for doubtful accounts

xx



Accounts receivables


xx





Direct write-off method

Bad debt expenses

xx



Accounts receivables


xx

Step by step solution

01

Definition of Accounts Receivables

The accounts receivables refer to the sales amount for which payment is still due from the customer. It is considered a current asset of the business as the entity expects to receive it within one year.

02

Journal entry using allowance method and direct write-off method

Allowance method: Under the allowance method, the business entity debits the allowance for bad debts. It is done to adjust the allowance made by the business entity.

Direct write-off method: The business entity debits the bad debt expenses under this method.

The allowance method is different from the direct write-off method because it does not affect the income statement of the business entity.

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Most popular questions from this chapter

Question: A table of notes receivable for 2018 follows:

Principal

Interest

Interest Period During 2018

Note 1

\( 30,000

6%

6 months

Note 2

\) 12,000

10%

270 days

Note 3

\( 14,000

14%

75 days

Note 4

\) 100,000

7%

10 months

For each of the notes receivable, compute the amount of interest revenue earned during 2018. Round to the nearest dollar

At January 1, 2018, Hilltop Flagpoles had Accounts Receivable of \(28,000, and Allowance for Bad Debts had a credit balance of \)3,000. During the year, Hilltop Flagpoles recorded the following:

a. Sales of \(185,000 (\)164,000 on account; \(21,000 for cash). Ignore Cost of Goods Sold.

b. Collections on account, \)135,000.

c. Write-offs of uncollectible receivables, $2,300.

Requirements

1. Journalize Hilltop鈥檚 transactions that occurred during 2018. The company uses the allowance method.

2. Post Hilltop鈥檚 transactions to the Accounts Receivable and Allowance for Bad Debts T-accounts.

3. Journalize Hilltop鈥檚 adjustment to record bad debts expense assuming Hilltop estimates bad debts as 10% of accounts receivable. Post the adjustment to the appropriate T-accounts.

4. Show how Hilltop Flagpoles will report net accounts receivable on its December 31, 2018, balance sheet

Accounting for notes receivable and accruing interestCarley Realty loaned money and received the following notes during 2018.Note Date Principal Amount Interest Rate Term

(1) Apr. 1 $ 6,000 7% 1 year

(2) Sep. 30 12,000 6% 6 months

(3) Sep. 19 18,000 8% 90 days

Requirements

1. Determine the maturity date and maturity value of each note.

2. Journalize the entries to establish each Note Receivable and to record the collection ofprincipal and interest at maturity. Include a single adjusting entry on December 31, 2018, the fiscal year-end, to record accrued interest revenue on any applicable note.Explanations are not required. Round to the nearest dollar.

P8-38B Accounting for uncollectible accounts (aging-of-receivables method),

notes receivable, and accrued interest revenue

Relax Recliner Chairs completed the following selected transactions:

2018

Jul. 1 Sold merchandise inventory to Go-Mart, receiving a \(43,000, nine-month,

16% note. Ignore Cost of Goods Sold.

Oct. 31 Recorded cash sales for the period of \)23,000. Ignore Cost of Goods Sold.

Dec. 31 Made an adjusting entry to accrue interest on the Go-Mart note.

31 Made an adjusting entry to record bad debts expense based on an aging

of accounts receivable. The aging schedule shows that \(14,900 of accounts

receivable will not be collected. Prior to this adjustment, the credit balance

in Allowance for Bad Debts is \)10,700.

2019

Apr. 1 Collected the maturity value of the Go-Mart note.

Jun. 23 Sold merchandise inventory to Allure, Corp., receiving a 60-day, 6% note for

\(7,000. Ignore Cost of Goods Sold.

Aug. 22 Allure, Corp. dishonored its note at maturity; the business converted the

maturity value of the note to an account receivable.

Nov. 16 Loaned \)20,000 cash to Tench, Inc., receiving a 90-day, 8% note.

Dec. 5 Collected in full on account from Allure, Corp.

31 Accrued the interest on the Tench, Inc. note.

Record the transactions in the journal of Relax Recliner Chairs. Explanations are not

required. (Round to the nearest dollar.)

What occurs when a business pledges its receivables?
See all solutions

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