Question

On June ​1, 2018​, Top Performance Cell Phones sold $ 26 comma 000 of merchandise to Alright Trucking Company on account. Alright fell on hard times and on July 15 paid only $ 7 comma 500 of the account receivable. After repeated attempts to​ collect, Top Performance finally wrote off its accounts receivable from Alright on September 5. Six months​ later, March ​5, 2019​, Top Performance received Alright's check for $ 18 comma 500 with a note apologizing for the late payment.

REQUIREMENTS


1. Journalize the transactions for High Performance Cell PhonesHigh Performance Cell Phones using the direct​ write-off method. Ignore Cost of Goods Sold.

2. What are some limitations that High Performance will encounter when using the direct​ write-off method?

Answer 1

1.

June 1 2018

Dr Account Receivable 26,000

Cr Sales 26,000

( to record sales on account to Alright trucking)

July 15 2018

Dr Cash 7,500

Cr Account Receivable 7,500

( to record cash collection from Alright trucking)

Sep 5 2018

Dr Bad Debt Expenses 18,500

Cr Account Receivable 18,500

( to record bad debt expenses from Alright trucking's receivables)

March 5,2019

Dr Account Receivables 18,500

Cr Bad Debt Expenses 18,500

( to reverse the bad debt record of Alright trucking's receivables)

Dr Cash 18,500

Cr Account Receivable 18,500

( to record cash collection from Alright trucking)

2.

The limitations of direct written-off method is Bad Debt expenses is only recorded when it is incurred rather than when it is highly possible to be foreseen and estimated.

As a result, Account Receivables is tend to be recorded at the higher balance and Bad Debt expenses is recorded with the lack of timely manner ( that is, period after it is incurred) and thus does not match with the period the originating Sales is earned.

Step-by-step explanation: