Alpha Company uses the direct write-off method of recording uncollectible accounts. On August 15, 2016, Yankee Zulu filed for bankruptcy and informed Alpha that he would be unable to pay $300 owed to Alpha. Alpha is certain that it will be unable to collect the $300.
Use this information to prepare the General Journal entry (without explanation) for August 15.
Accounts Receivable and Bad Debt:
When companies choose to extend credit to their customers which allows them to pay at a later date there is a chance that the customers will not pay their balance. When customers do not pay their balance due then this is considered bad debt.
Answer and Explanation:
|August 15||Bad Debt Expense||300|
Under the direct write-off method bad debt expense is not recognized until the account is deemed uncollectible. At that point bad debt expense is debited and the receivable is credited. Generally Accepted Accounting Principles (GAAP) does not allow companies to use the direct write-off method.
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from Financial Accounting: Homework Help ResourceChapter 3 / Lesson 20