Question

Davidson has the following transactions during​ January: Credit sales of​ $150,000, collections of credit sales of​ $83,000, and​ write-offs of​ $20,000. Davidson uses the direct​ write-off method. The amount of Bad Debts Expense for January is​ ________.

Answer 1

$20,000

Step-by-step explanation:

When a company makes sales on account, debit accounts receivable and credit sales. Based on assessment, some or all of the receivables may be uncollectible.

To account for this, debit bad debit expense and credit allowance for doubtful debt. Should the debt become uncollectible (i.e go bad), debit allowance for doubtful debt and credit accounts receivable.

However, in the direct writeoff method, estimates of uncollectible receivables are posted directly into the accounts receivable and not into the allowance account.

The amount in the accounts receivable before write off

= $150,000 - $83,000

= $67,000

Amount written of is $20,000, this will be posted as a debit to bad debt expense and a credit to accounts receivable.