Question

Delores Cooper operates Cooper Garden Designs. Most of her customers pay cash so she uses the direct write-off method to account for uncollectible accounts receivable. On May 3, 2020, she determined that the $2,700 account for Wilma Benz was uncollectible. During 2020, she had total credit sales of $275,000. The December 31, 2020, balance in accounts receivable was $44,000.

Required:
Prepare journal entry to record the May 3 write-off using the direct write-off method.

1. Record to write-off an uncollectible receivable using the direct write-off method.

Analysis Component:
Delores wants to compare the effect of using the allowance method versus the direct write-off method for recording uncollectible accounts. If uncollectible accounts were estimated at (a) 2% of credit sales or (b) 4% of outstanding accounts receivable, prepare a comparison of the effects on profit of using the allowance methods versus the direct write-off method.

a. Using 2% of credit sales Effect on profit by Using 4% of outstanding accounts receivable Effect on profit by

Answer 1

Solution 1:

Journal Entries - Delores Cooper
Date	Particulars	Debit	Credit
3-May	Bad debts expense Dr ($16,320 - $5,400)	$2,700.00
	To Accounts receivables - Wilma Benz		$2,700.00
	(To record bad debts expense)

Analysis:

a. Bad debts expense using % of credit sales = $275,000 *2% = $5,500

Decrease in profit = $5,500 - $2,700 = $2,800

b, Bad debts expense using % of outstanding receivables = $44,000*4% = $1,760

Increase in profit = $2,700 - $1,760 = $940

a.	Using 2% of credit sales
	Effect on profit	decreases	by	$2,800.00
b.	Using 4% of outstanding accounts receivables
	Effect on profit	Increases	by	$940.00