Answer:
- (a) If Bramble uses the direct write-off method to account for uncollectible accounts and Bramble determines that Matisse’s $922 balance is uncollectible, what will Bramble record as bad debt expense?
Dr Bad Debt Expense $ 922
Cr Accounts Receivable $ 922
- (b) If Allowance for Doubtful Accounts has a balance of $1,116 and Bramble concludes bad debts are expected to be 9% of accounts receivable, what will Bramble record as bad debt expense?
Dr Bad Debt Expense $ 5,589
Cr Allowance for Uncollectible Accounts $ 5,589
Explanation:
The direct write-off method is to directly cancel bad debts at the time it was decided that the credit is bad, the total amount reported as bad debt expenses negatively affect the income statement and the accounts receivable are reduced by the same amount, less assets
Dr Bad Debt Expense $ 922
Cr Accounts Receivable $ 922
The other way is to determine a percentage of the total amount of accounts receivable as bad debts, there are many ways to analyze accounts receivable and calculate the value of bad debts.
When the company has the percentage of uncollectible accounts, the required journal entry is Bad Expenses (debit) with Reserve for Bad Accounts (credit)
At the time of cancellation, since the expenses were recognized before, we only use the Allowance for Uncollectible Accounts (Debit) with accounts receivable (credit), with this we are recognizing the bad credit of the company.
Dr Bad Debt Expense $ 5,589
Cr Allowance for Uncollectible Accounts $ 5,589
If the company applies the allowance method, it means that the account Allowance for Uncollectible Accounts must show as balance the % of accounts receivables as CREDIT.
Because the company has a credit balance in that account it's necessary to register an entry that complement the credit value and reflect A CREDIT estimated as % of account receivable., this case it's 9% of accounts receivable.
