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 $1,400 account of a customer, C. Green. On March 9, it receives a $900 payment from Green. 1. Prepare the journal entry for January 31. 2. Prepare the journal entries for March 9; assume no additional money is expected from Green.

Answer 1

Journal entries for writing off a bad debt and for recovery of part of the debt include adjustments to Allowance for Doubtful Accounts, Accounts Receivable, and Cash accounts.

Step-by-step explanation:

Journal Entries for Allowance Method and Recovery of Bad Debts

When Gomez Corp. wrote off the $1,400 account of C. Green on January 31 using the allowance method, the corresponding journal entry would be:

• 
  
• Debit: Allowance for Doubtful Accounts $1,400
• 
  
• Credit: Accounts Receivable $1,400

This entry removes the uncollectible amount from Accounts Receivable and reduces the Allowance for Doubtful Accounts accordingly.

On March 9, when a $900 payment is received from Green, the entries to record the recovery of bad debt and the receipt of cash would be:

• 
  
• Debit: Accounts Receivable $900
• 
  
• Credit: Allowance for Doubtful Accounts $900

and

• 
  
• Debit: Cash $900
• 
  
• Credit: Accounts Receivable $900

The first entry re-establishes the receivable for the amount received. The second entry records the cash payment that was made.

It is assumed that no additional money is expected from Green, so this concludes the transactions related to the $1,400 charge-off.