Stacey Corp. uses the direct write-off method to account for bad debts. On May 26 the company determines that a customer account with a balance of $750 is uncollectible. The journal entry to record this loss is:
A)Debit Bad Debts Expense $750 and credit Accounts Receivable $750.
B)Debit Accounts Receivable $750 and credit Accounts Payable $750.
C)Debit Bad Debts Expense $750 and credit Accounts Payable $750.
D)Debit Allowance for Doubtful Accounts $750 and credit Accounts Receivable $750.
E)Debit Bad Debt Expense $750 and credit Allowance for Doubtful Accounts $750.

Question

Quizplus · Accepted Answer

The direct write-off method requires that bad debts be recorded as expenses at the time they are determined to be uncollectible. Therefore, the journal entry would be to debit Bad Debts Expense for $750 and credit Accounts Receivable for $750 to reflect the loss. The other answer choices do not accurately reflect this method of accounting for bad debts.