Welles Company Uses the Direct Write-Off Method of Accounting for Uncollectible

question 91

Essay

Welles Company uses the direct write-off method of accounting for uncollectible accounts receivable.On December 6,2015,Welles sold $6,300 of merchandise to the Fleming Company.On August 8,2016,after numerous attempts to collect the account,Welles determined that the $6,300 account of the Fleming Company was uncollectible.
Required:
Part a.Prepare the general journal entries required to record the transactions on August 8,2016.
Part b.Assuming that the $6,300 is material,explain how the direct write-off method violates the matching principle in this case.

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Definitions:

Balance Sheet

A report detailing a business's assets, debts, and owner's equity at a particular moment, offering a glimpse into its financial health.

Income Statement

A financial statement that shows a company's revenues and expenses, and profits or losses over a specific period of time.

Relationship of Net Income to Net Sales

A profitability metric that measures the percentage of net sales that ultimately becomes net income, indicating the efficiency of a company in generating profit from sales.

Net Income

The total earnings of a company after all expenses and taxes have been subtracted from total revenue.