Question

Gomez Corp. uses the allowance method to account for uncollectibles. On January 31, it wrote off an $1,500 account of a customer, C. Green. On March 9, it receives a $1,000 payment from Green. 1. Prepare the journal entry for January 31 2. Prepare the journal entries for March 9; assume no additional money is expected from Green.

Answer 1

Answer:

                                                                             Debit                     Credit

1) Allowance for doubtful accounts                  $1,500

Accouts receivable                                                                           $1,500

2) Cash                                                               $1,000

Bad debt recovery account                                                             $1,000

Explanation:

1)  Since the company adopts the allowance method to account for uncollectibles, it is expected that there would still be some buffer in that account to take care of the write-off. So, that account has to be debited to extinguish the accounts receivables.

2) Now that there is a recovery from Green, cash has to be debited, first of all to recognize the receipt and then credit goes to bad debt recovery account, which reports to income statement.