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. However, after doing the journal entry for this write-off, the hotel miraculously received a check from Mr. Thomas for the amount owed (=$1,750). Based on this last development, the journal entry (or entries) would be:

Answer 1

The journal entries after receiving Mr. Thomas's payment would involve debiting cash and crediting accounts receivable, then reversing the write-off by debiting accounts receivable and crediting bad debts expense.

Step-by-step explanation:

The question involves the accounting process related to the direct write-off method in a business scenario. When a business writes off a bad debt, it makes an accounting entry that removes the debt from its books. In this case, Princess Beach Hotel had previously written off Mr. Thomas's debt. However, upon receiving the payment, the hotel will need to reverse the write-off. The journal entries would be as follows:

1. Upon receiving the check: Debit Cash for $1,750; Credit Accounts Receivable (or Allowance for Doubtful Accounts if used) for $1,750.
2. To reverse the write-off: Debit Accounts Receivable for $1,750; Credit Bad Debts Expense for $1,750.

These entries correctly reflect the recovery of the bad debt in the hotel's accounting records.