Answer:
The following are the Journal entries by date of transactions:
Apr 13
Debit Bad debt expense Account with $5,000
Credit Accounts Receivables (Dean Sheppard) with $5,000
(Uncollectible debt of Dean Sheppard written off)
May 15
Debit Bank Account with $2,500
Credit Accounts Receivables (Dan Pyle) with $2,500
(Partial payment of Dan Pyle's indebtedness)
May 15
Debit Bad debt expense Account with $4,150
Credit Accounts Receivables (Dean Sheppard) with $4,150
(Uncollectible debt of Dan Pyle written off)
July 27
Debit Accounts Receivables (Dean Sheppard) with $5,000
Credit Bad debt Expense Account with $5,000
(Reinstatement of full debt of Dean Sheppard now collectible)
July 27
Debit Bank Account with $5,000
Credit Accounts Receivables (Dean Sheppard) with $5,000
(Full settlement of outstanding debt of Dean Sheppard)
Dec 31
Debit Bad Debt expense with $10,200
Credit Account Receivables (Paul Chapman) with $3,350
Credit Account Receivables (Duan DeRosa with $2,500
Credit Account Receivables Teresa Galloway) with $1,500
Credit Account Receivables (Ernie Klatt) with $2,100
Credit Account Receivables (Marty Rickey) with $750
(Being amounts uncollectible from our respective customers in the year)
Dec 31. No adjusting entry required.
Total Bad debt expense Account in the year = $5,000 + $4,150 - $5,000 + $10,200 = $14,350
Explanation:
Shipway Company
Direct write off Method is an approach to accounting for uncollectible debts accruing from Credit sales to our Customers.
Under the Direct write off method, the selling company doesn't make any provision for bad debt (which is usually a percentage of its Sales based on an average recognized over time) but instead only recognizes a bad debt or expense when the debt is deemed uncollectible.
The Allowance write off method is the 2nd approach to recognizing uncollectible debts owed a firm by its credit customers. In this approach at the end of the year the company will make a provision, based on a percentage of its sales as likely to be doubtful and in turn become uncollectible.
