Question

Journalizing transactions using the direct write-off method versus the allowance method During August 2018, Lima Company recorded the following

. Sales of $133,300 ($122,000 on account $11,300 for cash). Ignore Cost of Goods Sold.
. Collections on account, $106,400.
. Write-offs of uncollectible receivables, $990.
. Recovery of receivable previously written off, $800.
Requirements
1. Journalize Lima's transactions during August 2018, assuming Lima uses the direct write-off method
2. Journalize Lima's transactions during August 2018, assuming Lima uses the allowance method.

Answer 1

Lima Company

Journal Entries during August 2018:

1. Direct write-off method:

Debit Accounts Receivable $122,000

Debit Cash $11,300

Credit Sales Revenue $133,300

To record the sale of goods on credit and for cash.

Debit Cash $106,400

Credit Accounts Receivable $106,400

To record the cash receipts on account.

Debit Bad Debts Expense $990

Credit Accounts Receivable $990

To write-off uncollectible accounts.

Debit Cash $800

Credit Bad Debts Expense $800

To record the recovery of previously written off accounts.

2. Allowance Method:

Debit Accounts Receivable $122,000

Debit Cash $11,300

Credit Sales Revenue $133,300

To record the sale of goods on credit and for cash.

Debit Cash $106,400

Credit Accounts Receivable $106,400

To record the cash receipts on account.

Debit Allowance for Uncollectible Accounts $990

Credit Accounts Receivable $990

To record the write-off of uncollectible accounts.

Debit Accounts Receivable $800

Credit Allowance for Uncollectible Accounts $800

To reinstate the recovery of previously written off accounts.

Debit Cash $800

Credit Accounts Receivable $800

To record the recovery of previously written off accounts.

Step-by-step explanation:

a) Data and Analysis:

1. Direct write-off method:

Accounts Receivable $122,000 Cash $11,300 Sales Revenue $133,300

Cash $106,400 Accounts Receivable $106,400

Bad Debts Expense $990 Accounts Receivable $990

Cash $800 Bad Debts $800

2. Allowance Method:

Accounts Receivable $122,000 Cash $11,300 Sales Revenue $133,300

Cash $106,400 Accounts Receivable $106,400

Allowance for Uncollectible Accounts $990 Accounts Receivable $990

Accounts Receivable $800 Allowance for Uncollectible Accounts $800

Cash $800 Accounts Receivable $800