For a Business That Uses the Allowance Method of Accounting

question 121

Essay

For a business that uses the allowance method of accounting for uncollectible receivables:
(a)Journalize the entries to record the following:
(1)Record the adjusting entry at December 31, the end of the first fiscal year, to record the bad debt expense. The accounts receivable account has a balance of $800,000, and the contra asset account before adjustment has a debit balance of $600. Analysis of the receivables indicates uncollectible receivables of $18,000.
(2)In March of the next year, the $350 owed by Fronk Co. on account is written off as uncollectible.
(3)In November of the next year, $200 of the Fronk Co. account is reinstated and payment of that amount is received.
(4)In December of the next year, $400 is received on the $600 owed by Dodger Co. and the remainder is written off as uncollectible.
(b)Redo the entries in steps (2), (3), and (4) assuming the company uses the direct write-off method.

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Definitions:

Beginning Inventory

The total worth of a company's inventory at the beginning of a financial period.

Purchases

Items bought or acquired by a company for various purposes, primarily for resale in the course of business.

Cost Of Goods Available

The total cost of inventory available for sale during a period, calculated as beginning inventory plus purchases minus ending inventory.

Periodic Inventory System

An accounting method where inventory is physically counted at specific intervals to determine the level of inventory and cost of goods sold.