Welles Company uses the direct write-off method of accounting for uncollectible

Question

Welles Company uses the direct write-off method of accounting for uncollectible accounts receivable. On December 6, 2010, Welles sold $6,300 of merchandise to the Fleming Company. On August 8, 2011, after numerous attempts to collect the account, Welles determined that the $6,300 account of the Fleming Company was uncollectible.

A. Prepare the general journal entries required to record the transactions on August 8, 2011

B. Assuming that the $6,300 is material, explain how the direct write-off method violates the matching principle in this case

Explanation / Answer

Aug 8

DR: Bad debt expense $6,300

CR: Accounts receivable 6,300

B. Since this receivable was created in the prior period, the expense should be reported in the same period (per the matching principle). Since it's reported in the following period, this principle is violated.

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