Final answer:
The correct journal entry for the write-off using the direct write-off method involves debiting Bad Debts Expense for $2,000 and crediting Accounts Receivable—A. Hopkins for $2,000 to remove the uncollectible account from the books.
Step-by-step explanation:
When using the direct write-off method for uncollectible accounts, Gideon Company would make the following journal entry on May 3 to write off A. Hopkins's $2,000 uncollectible account:
-
- Debit Bad Debts Expense $2,000
-
- Credit Accounts Receivable—A. Hopkins $2,000
Bad Debts Expense is the expense account that represents the cost of estimated uncollectible accounts. This is used when a company has decided that an account is uncollectible and is not going to be paid. The corresponding credit is to Accounts Receivable—A. Hopkins, which removes the account receivable from the books. It's important to note that the Allowance for Doubtful Accounts is not used in the direct write-off method; this account is used in the allowance method. The other options presented involving Cash are incorrect because cash is unaffected when an account is deemed uncollectible and subsequently written off; there has been no cash flow associated with this write-off.