Question

Handel Company uses the allowance method for estimating uncollectible accounts.

January 5 Sold merchandise to Terry Richman for $2,000, terms n/15.
April 15 Received $600 from Terry Richman on account.
August 21 Wrote off as uncollectible the balance of the Terry Richman account when she declared bankruptcy.
October 5 Unexpectedly received a check for $300 from Terry Richman. It is not felt any more will be received from Richman.

Prepare journal entries to record the above transactions.

Answer 1

Answer: Please refer to Explanation.

Explanation:

January 2

DR Accounts Receivable - Terry Richman $2,000

CR Sales $2,000

(To record sale of goods to Terry Richman on Account)

April 15

DR Cash $600

CR Accounts Receivable - Terry Richman $600

(To record cash received from Terry Richman)

August 21

DR Allowance for Doubtful Debt $1,400

CR Accounts Receivable - Terry Richman $1,400

(To record write off of Terry Richman Account)

October 5

DR Accounts Receivable - Terry Richman $300

CR Allowance for Doubtful Debt $300

October 5

DR Cash $300

CR Accounts Receivable $300

(To record Cash Received from Terry Richman)

Workings and Notes.

Terry Richman paid $600 out of their $2,000 debt before declaring bankruptcy.

= 2,000 - 600

= $1,400.

This is why $1,400 was the written off figure.

When an Receivables account is written off, it is debited to the Allowance for Doubtful Debt Account.

When money is unexpectedly received after a write off, the amount first has to be retrieved from the Allowance for Doubtful Debt and taken back to the Accounts Receivables and then it can be recorded as Cash received.