Question

Allowance method for bad debts LO P2 Gomez Corp. uses the allowance method to account for uncollectibles. On January 31, It wrote off an $1,800 account of a customer,, C. Green. On March 9, It recelves a $1,300 payment from Green. Prepare the Journal entry or entries for January 31

Answer 1

The journal entry on January 31 for the write-off of C. Green's uncollectible $1,800 account involves debiting Allowance for Doubtful Accounts and crediting Accounts Receivable, which adjusts the accounts without affecting the income statement.

Step-by-step explanation:

The subject question pertains to the allowance method for bad debts, which is a common accounting practice used to account for and anticipate uncollectible accounts receivable. On January 31, the Gomez Corp. must write off a bad debt of $1,800 for a customer, C. Green. The journal entry to record this write-off would be a debit to the Allowance for Doubtful Accounts and a credit to Accounts Receivable, specifically:

• Debit Allowance for Doubtful Accounts $1,800
• Credit Accounts Receivable - C. Green $1,800

This entry removes the uncollectible amount from Accounts Receivable and records it against the allowance that was previously established for such bad debts. This action does not directly affect the company's income statement because the expense related to potential bad debts would have been estimated and recorded earlier as a Bad Debt Expense when the allowance was initially created.