When a company is using the direct write-off method and an account is written off,the journal entry consists of a:
A)credit to Accounts receivable and a debit to Interest expense.
B)debit to Accounts receivable and a credit to Cash.
C)credit to Accounts receivable and a debit to Bad debts expense.
D)debit to the Allowance for doubtful debts and a credit to Accounts receivable.

Question

Quizplus · Accepted Answer

The direct write-off method involves writing off specific accounts as uncollectible when they are deemed to be completely uncollectible. Therefore, when an account is written off, the journal entry includes a credit to Accounts receivable (to reduce the amount owed) and a debit to Bad debts expense (to recognize the uncollectible amount as an expense). Option A is incorrect because there is no interest expense involved in writing off an account. Option B is incorrect because there is no cash transaction involved in writing off an account. Option D is incorrect because the direct write-off method does not involve an allowance account.

When a Company Is Using the Direct Write-Off Method and an Account