Question

In October, Oliver Company sold merchandise on account to Mr. Reed for $100 with terms 2/10, n/30. Oliver Company uses the percentage of receivables basis for estimating uncollectible accounts on December 31. On May 25, Oliver Company determines that it will not collect the amount due from Mr. Reed. Prepare the journal entry to record the write-off on May 25.

1) Allowance for Doubtful Accounts 98
Accounts Receivable 98
2) Allowance for Doubtful Accounts 100
Bad Debts Expense 100
3) Allowance for Doubtful Accounts 100
Accounts Receivable 100
4) Bad Debts Expense 100
Accounts Receivable 100

Answer 1

The correct journal entry to record the write-off on May 25 would be: Allowance for Doubtful Accounts $98 and Accounts Receivable $98.

Step-by-step explanation:

The correct journal entry to record the write-off on May 25 would be:

1. Allowance for Doubtful Accounts $98
2. Accounts Receivable $98

When a customer's account is deemed uncollectible, the amount is written off by reducing the Accounts Receivable balance. The offsetting entry is made to the Allowance for Doubtful Accounts, which is a contra-asset account used to estimate uncollectible accounts.