At December 31, 2020, the trial balance of Darby Antiques contained the following amounts before adjustment.

Instructions
a. Based on the information given, which method of accounting for bad debts is Darby using—the direct write-off method or the allowance method? How can you tell?
b. Prepare the adjusting entry at December 31, 2020, for bad debt expense, assuming an aging schedule indicates that £11,750 of accounts receivable will be uncollectible.
c. Repeat part (b) assuming that instead of a credit balance there is a £1,000 debit balance in Allowance for Doubtful Accounts.
d. During the next month, January 2021, a £3,000 account receivable is written off as uncollectible.
Prepare the journal entry to record the write-off .
e. Repeat part (d) assuming that Darby uses the direct write-off method instead of the allowance method in accounting for uncollectible accounts receivable.
f. What type of account is Allowance for Doubtful Accounts? How does it aff ect how accounts receivable is reported on the statement of financial position at the end of the accounting period?

Transcribed Image Text:

Debit Credit Accounts Receivable Allowance for Doubtful Accounts £385,000 £1,000 Sales Revenue 970,000