Question

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

Answer 1

a)

Date	Account title and explanation	Debit	Credit
Jun -8	Bad debt Expense	$9470
	To Accounts Receivable-Kathy Quantel		$9470
Aug 14	Cash	$6720
	Bad debt expense(16950-6720)	$10230
	To Accounts Receivable-Rosalie Oakes		$16950
Oct 16	Accounts Receivable-Kathy Quantel	$9470
	To Bad debt expense		$9470
Oct 16	Cash	$9470
	To Accounts Receivable-Kathy Quartel		$9470
Dec -31	Bad debt expense	$15810
	To Accounts Receivable-Wade Dolan		$2750
	To Accounts Receivable - Greg Gagne		$1700
	To Accounts Receivable-Amber Kisko		$6530
	To Accounts Receivable-Shannon Poole		$3790
	To Accounts Receivable-Niki Spence		$1040

b)Journalise the transaction under the allowance method ,assuming that the allowance account had a beginning balance of $28410

Date	Account title and explanation	Debit	Credit
Jun -8	Allowance for Doubtful Accounts	$9470
	To account receivable-Kathyb Quantel		$9470
Aug 14	Cash	$6720
	Allowance for Doubtful Accounts	$10230
	To Accounts receivable- Rosale oakes		$16950
Oct 16	Accounts Receivable-Kathy Quantel	$9470
	To Allowance for Doubtful accounts		$9470
Oct 16	Cash	$9470
	To accounts Receivable-Kathy Quantel		$9470
Dec 31	Allowance for Doubtful Accounts	$15810
	To Accounts receivable- Wade Dolan		$2750
	To Accounts Receivable-Greg Gagne		$1700
	To Accounts Receivable-Amber Kisko		$6530
	To Accounts Receivable- Shannon poole		$3790
	To Accounts Receivable-Niki Spence		$1040
Dec -31	Bad Debt expense($73700-$2370)	$71330
	To Allowance Doubtful Accounts		$71330

(28410-9470-10230+9470-15810)=$2370

Aging Schedule -Estimated Uncollectible Accounts
Age	Amount of receivables	Estimated uncollectible (%)	Estimated amount uncollectible
0-30 days past due	$455000	3%	$13650(455000*3%)
31-60 days past due	$170000	8%	$13600(170000*8%)
61-90 days past due	$54000	30%	$16200(54000*30%)
91-120 days past due	$20000	50%	$10000(20000*50%)
more than 120 days past due	$27000	75%	$20250(27000*75%)
Total	$726000		$73700

c)

Bad Debt expense under:
Allowance method	$71330
Direct write off method(10230+15810)	$26040
Difference	$45290

Rustic tables,the bad expenses under allowance method are higher than amount under direct write-off method.so the net Income would be $45290 HIGHER under the direct write off method than under the allowance method.