A customer owes a business $2560 and makes a partial payment of $1,500. The rema

Question

A customer owes a business $2560 and makes a partial payment of $1,500. The remainder is considered uncollectible. If the business uses the direct write-off method, its journal entry will involve

debits to Cash and Bad Debts Expense for $1,500 and $1,060, respectively, and a credit to Accounts Receivable for $2,560.

debits to Cash and Allowance for Doubtful Accounts for $1,500 and $1,050, respectively, and a credit to Accounts Receivable for $2,560.

debit to Cash for $1,050 and credits to Allowance for Doubtful Accounts and Accounts Receivable for $1,500 and $450, respectively.

debit to Allowance for Doubtful Accounts for $650 and credits to Cash and Accounts Receivable for $200 and $450, respectively

A.

debits to Cash and Bad Debts Expense for $1,500 and $1,060, respectively, and a credit to Accounts Receivable for $2,560.

B.

debits to Cash and Allowance for Doubtful Accounts for $1,500 and $1,050, respectively, and a credit to Accounts Receivable for $2,560.

C.

debit to Cash for $1,050 and credits to Allowance for Doubtful Accounts and Accounts Receivable for $1,500 and $450, respectively.

D.

debit to Allowance for Doubtful Accounts for $650 and credits to Cash and Accounts Receivable for $200 and $450, respectively

Explanation / Answer

Answer is option (A). Debits to Cash and Bad Debts Expense for $1,500 and $1,060, respectively, and a credit to Accounts Receivable for $2,560.

Explanation;

It is given that a customer owes a business $2560

Cash collected from customer = $1500

Thus bad debts will be ($2560 – $1500) = $1060

Now following entry will be made;

Cash

$1500

Bad Debts Expense

$1060

      Accounts receivable

$2560

As we know that at the time of receipt of cash, cash account is debited thus it is debited.

Bad debt expense is a loss that is why as per rule of accounting all losses are debited that is why it is debited.

Accounts receivable is credited because under direct write-off method entry is made with the help of accounts receivable account not with the help of allowance for doubtful debt account.

Cash

$1500

Bad Debts Expense

$1060

      Accounts receivable

$2560

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