Direct Write-Off
What account is used when writing off an account using the direct write-off method?
Bad Debt Expense
What account is used to write off an account using the allowance method?
Allowance for Doubtful Accounts (AFDA)
How do you calculate the maturity date of a note?
You add the days of the note from the day the note was made.
How do you journal for a note?
Debit Notes Receivable
Credit Cash/ Accounts Receivable
ABC Company determines that a customer, Lisa Corp., will not pay their outstanding invoice of $450.
Record the journal entry using the direct write-off method.
Bad Debt Expense .......... 450
Accounts Receivable – Lisa Corp. .... 450
What do you do for an adjusting entry?
Debit Bad Debt Expense
Credit AFDA
If a 90-day note is issued on March 16, what is the maturity date?
June 14th
On July 5, Elm Co. converts a customer’s overdue $4,000 account into a 60-day, 9% note.
Notes Receivable ................. 4,000
Accounts Receivable – Customer ........ 4,000
River Flooring sold flooring on account for $4,000 to Mike’s Remodeling. Later, Mike’s Remodeling can only pay 20% of the account, journalize the transaction.
Bad Debt Expense .......... 3,200
Cash..............................800
A/R – Mike’s Remodeling .......... 4,000
Bright Star Co. had $180,000 in credit sales this year.
The company estimates 1% of credit sales will be uncollectible. Record the adjusting entry for bad debt expense.
Bad Debt Expense ...................... 1,800
Allowance for Doubtful Accounts ........ 1,800
$180,000 × 0.01 = $1,800
A 60-day note is issued on March 10. What is the maturity date?
May 9th
On April 10, Green Valley receives a 90-day, 8% note for $2,500.
The customer pays the note and the interest at maturity.
Notes Receivable....................2,500
Accounts Receivable....................2,500
Cash ...................................... 2,550
Notes Receivable .......................... 2,500
Interest Revenue ............................ 50
Trident Supply wrote off a $2,000 account receivable from Nova Contractors in December, believing it was uncollectible due to bankruptcy.
Unexpectedly, on February 15, Nova Contractors pays $2,000 in full.
Accounts Receivable – Nova Contractors .... 2,000
Bad Debt Expense .................................. 2,000
Cash .............................................. 2,000
Accounts Receivable – Nova Contractors .... 2,000
Accounts Receivable balance = $240,000
Allowance should equal 4% of receivables.
Allowance account before adjustment has a $1,500 credit balance. Record the adjusting entry.
Bad Debt Expense ........................ 8,100
Allowance for Doubtful Accounts ........ 8,100
4% × $240,000 = $9,600
$9,600 − $1,500 = $8,100
A 120-day note is issued on September 5. On what date does it mature?
January 3rd
On September 1, a customer gives Sunset Co. a 30-day, 10% note for $1,200.
The note is not paid at maturity, and Sunset transfers the amount back to Accounts Receivable.
Accounts Receivable – Customer ....... 1,210
Notes Receivable ............................... 1,200
Interest Revenue ................................ 10
Empire Fitness wrote off a $1,050 account from BodyFuel Co. on November 30.
On December 18, BodyFuel pays $1,050 by check.
Accounts Receivable – BodyFuel Co. .... 1,050
Bad Debt Expense ............................ 1,050
Cash ............................................... 1,050
Accounts Receivable – BodyFuel Co. .... 1,050
Credit sales for the year: $620,000
Estimated uncollectible: 0.8%
Allowance for Doubtful Accounts has a $600 debit balance before adjustment. Record the adjusting entry.
Bad Debt Expense ........................ 5,560
Allowance for Doubtful Accounts ........ 5,560
$620,000 × 0.008 = $4,960
$4,960 + $600 = $5,560
A 45-day note is accepted on December 10.
Find the maturity date.
January 24th
On May 1, Robbins Co. accepted a $10,000, 12%, 60-day note from a customer in exchange for a past-due account. On August 1, the customer pays only the interest on the note and renews the note.
Notes Receivable.............10,000
Cash..............................200
Notes Receivable.....................10,000
Interest Revenue.....................200