Question

Creative Solutions Company, a computer consulting firm, has decided to write off the $13,780 balance of an account owed by a customer, Wil Treadwell.
a. Journalize the entry to record the write-off, assuming that the direct write-off method is used.
b. Journalize the entry to record the write-off, assuming that the allowance method is used.

Answer 1

Answer and Explanation:

The journal entry for recording the bad debt expense is shown below:

a.  In case of when direct write off method is used

Bad debt expense $13,780  

             To Account receivable-Wil Treadwell $13,780

(Being bad debt expense is recorded)

Here the bad debt expense is debited as it increased the expenses and credited the account receivable as it decreased the assets

b. In case of when allowance method is used

Allowance for doubtful accounts $13,780  

          To Account receivable-Wil Treadwell $13,780

(Being the allowance is recorded)

Here the allowance is debited as it increased the assets and credited the account receivable as it decreased the assets