Entries for Bad Debt Expense Under the Direct Write-Off and Allowance Method

The following selected transactions were taken from the records of Rustic Tables Company for the year ending December 31:

June 8.

Wrote off account of Kathy Quantel, $9,470.

Aug. 14.

Received $6,720 as partial payment on the $16,950 account of Rosalie Oakes. Wrote off the remaining balance as uncollectible.

Oct. 16.

Received the $9,470 from Kathy Quantel, whose account had been written off on June 8. Reinstated the account and recorded the cash receipt.

Dec. 31.

Wrote off the following accounts as uncollectible (record as one journal entry):

Wade Dolan	$2,750
Greg Gagne	1,700
Amber Kisko	6,530
Shannon Poole	3,790
Niki Spence	1,040

Dec. 31.

If necessary, record the year-end adjusting entry for 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.

June 8	Bad Debt Expense
	Accounts Receivable-Kathy Quantel
Aug. 14	Cash
	Bad Debt Expense
	Accounts Receivable-Rosalie Oakes
Oct. 16	Accounts Receivable-Kathy Quantel
	Bad Debt Expense
Oct. 16	Cash
	Accounts Receivable-Kathy Quantel
Dec. 31	Bad Debt Expense
	Accounts Receivable-Wade Dolan
	Accounts Receivable-Greg Gagne
	Accounts Receivable-Amber Kisko
	Accounts Receivable-Shannon Poole
	Accounts Receivable-Niki Spence
Dec. 31	No entry
	No entry

Feedback

Remember that under the direct write-off method, Bad Debt Expense is not recorded until the customer's account is determined to be worthless.

Under the allowance method once a customer account is identified as uncollectible, it is written off against the allowance account.

b. Journalize the transactions under the allowance method, assuming that the allowance account had a beginning balance of $28,410 at the beginning of the year and the company uses the analysis of receivables method. Rustic Tables Company prepared the following aging schedule for its accounts receivable:

Aging Class (Number of Days Past Due)									Receivables Balance on December 31				Estimated Percent of Uncollectible Accounts
								0-30 days	$455,000				3	%
								31-60 days	170,000				8
								61-90 days	54,000				30
								91-120 days	20,000				50
								More than 120 days	27,000				75
								Total receivables	$726,000

June 8	Allowance for Doubtful Accounts
	Accounts Receivable-Kathy Quantel
Aug. 14	Cash
	Allowance for Doubtful Accounts
	Accounts Receivable-Rosalie Oakes
Oct. 16	Accounts Receivable-Kathy Quantel
	Allowance for Doubtful Accounts
Oct. 16	Cash
	Accounts Receivable-Kathy Quantel
Dec. 31	Allowance for Doubtful Accounts
	Accounts Receivable-Wade Dolan
	Accounts Receivable-Greg Gagne
	Accounts Receivable-Amber Kisko
	Accounts Receivable-Shannon Poole
	Accounts Receivable-Niki Spence
Dec. 31	Bad Debt Expense
	Allowance for Doubtful Accounts

Feedback

Remember that under the direct write-off method, Bad Debt Expense is not recorded until the customer's account is determined to be worthless.

Under the allowance method once a customer account is identified as uncollectible, it is written off against the allowance account.

c. How much higher (lower) would Rustic Tables net income have been under the direct write-off method than under the allowance method? Higher by