Miles uses the allowance method and wrote off the account of James. Miles then received $559 as partial payment on the account of James. The journal entry to record the initial write-off includes a
A) debit to Allowance for Doubtful Accounts
B) credit to Cash
C) debit to Accounts Receivable-James
D) credit to Bad Debt Expense

Question

Quizplus · Accepted Answer

The allowance method requires the company to estimate and record the potential amount of bad debts before they occur. The initial write-off of the account of James would result in a debit to Allowance for Doubtful Accounts (to reduce the balance of the allowance account) and a credit to Accounts Receivable-James (to remove the amount of the account from the company's books). A credit to Bad Debt Expense may be necessary if there is insufficient balance in the allowance account. However, none of the choices provided include a credit to Bad Debt Expense. A credit to Cash would be incorrect as the company did not receive cash in this transaction.

Miles Uses the Allowance Method and Wrote Off the Account