Question

Aron Larson is a customer of Bank Enterprises. Mr. Larson took out a loan in the amount of $120,000 on August 1. On December 31, Bank Enterprises uses the allowance method and determines the loan to be uncollectible. Larson had not paid anything toward the balance due on account. What is the journal entry recording the bad debt write-off?

a) Debit: Bad Debt Expense, Credit: Allowance for Doubtful Accounts
b) Debit: Allowance for Doubtful Accounts, Credit: Bad Debt Expense
c) Debit: Bad Debt Expense, Credit: Accounts Receivable
d) Debit: Allowance for Doubtful Accounts, Credit: Accounts Receivable

Answer 1

The correct journal entry to record the bad debt write-off using the allowance method for an uncollectible loan is to debit Allowance for Doubtful Accounts and credit Accounts Receivable.

Step-by-step explanation:

The question refers to a situation where Aron Larson, a customer of Bank Enterprises, took out a loan and later the bank deemed the loan uncollectible since the borrower did not make any payments. Using the allowance method, the appropriate journal entry to write off the bad debt would be to debit the Allowance for Doubtful Accounts and credit the Accounts Receivable, which removes the uncollectible amount from the bank's balance sheet. Therefore, the correct journal entry is:

• Debit: Allowance for Doubtful Accounts
• Credit: Accounts Receivable

This entry reflects the adjustment to both the allowance for doubtful accounts and the accounts receivable balance, representing the actual bad debt occurrence.