Question

Princess Beach Hotel in Cancun has a client, Mr. Thomas, who owes them an amount of $1,750 for his stay at the hotel some seven months ago. The hotel decided to write-off this amount for bad debts, using the direct write-off method. Based on this decision, the journal entry would be:

Answer 1

Using the direct write-off method, Princess Beach Hotel would record the uncollectible amount by debiting Bad Debts Expenses and crediting Accounts Receivable for $1,750.

Step-by-step explanation:

The direct write-off method is a way for businesses to account for bad debts when they determine that they can no longer collect on an outstanding receivable. When the Princess Beach Hotel in Cancun decides to write off the $1,750 owed by Mr. Thomas, the appropriate journal entry would be a debit to the Bad Debts Expense account and a credit to the Accounts Receivable account for Mr. Thomas. This reflects that the hotel is recognizing that the debt is unlikely to be collected by increasing the expense for bad debts and decreasing the accounts receivable.

Journal Entry:

• Debit: Bad Debts Expense $1,750
• Credit: Accounts Receivable - Mr. Thomas $1,750