Question

The following selected transactions were taken from the records of Shipway Company for the first year of its operations ending December 31: Apr. 13. Wrote off account of Dean Sheppard, $5,000. May 15. Received $2,500 as partial payment on the $6,650 account of Dan Pyle. Wrote off the remaining balance as uncollectible. July 27. Received $5,000 from Dean Sheppard, whose account had been written off on April 13. Reinstated the account and recorded the cash receipt. Dec. 31. Wrote off the following accounts as uncollectible (record as one journal entry): Paul Chapman $3,350 Duane DeRosa 2,500 Teresa Galloway 1,500 Ernie Klatt 2,100 Marty Richey 750 31. If necessary, record the year-end adjusting entry for the uncollectible accounts. If no entry is required, select "No entry" and leave the amount boxes blank. If an amount box does not require an entry, leave it blank. a. Journalize the transactions under the direct write-off method.

Answer 1

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.