Sam Ltd. writes off a specific customer's account of $1,000 as uncollectible. Which of the following journal entries is made under the direct write-off method?Question 23Answera.Debit Accounts Receivable, Credit Bad Debt Expenseb.Debit Bad Debt Expense, Credit Accounts Receivablec.Debit Bad Debt Expense, Credit Allowance for Doubtful Accountd.Debit Allowance for Doubtful Accounts, Credit Bad Debt Expense
Question
Sam Ltd. writes off a specific customer's account of $1,000 as uncollectible. Which of the following journal entries is made under the direct write-off method?Question 23Answera.Debit Accounts Receivable, Credit Bad Debt Expenseb.Debit Bad Debt Expense, Credit Accounts Receivablec.Debit Bad Debt Expense, Credit Allowance for Doubtful Accountd.Debit Allowance for Doubtful Accounts, Credit Bad Debt Expense
Solution
The correct journal entry under the direct write-off method when Sam Ltd. writes off a specific customer's account of $1,000 as uncollectible would be:
b. Debit Bad Debt Expense, Credit Accounts Receivable
Here's why:
Under the direct write-off method, when a company determines that a particular customer's account is uncollectible, it directly writes off the bad debt. The journal entry for this would be to debit (increase) the Bad Debt Expense account and credit (decrease) the Accounts Receivable account.
This method directly matches the bad debt expense to the revenue that is not collectible, although it may overstate accounts receivable on the balance sheet if used over a long period of time.
So, the journal entry would look like this:
Bad Debt Expense 1,000
This means that the company is recognizing $1,000 as a bad debt expense, and reducing the accounts receivable by the same amount.
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