[jessica1019]

I need some extra help on a couple of questions.

You are informed that Warren Hodges, one of your customers, has declared bankruptcy. Hodges has an account with your company with a current balance of $2,300. Using the allowance method, the entry to write off the uncollectible account involves:
a) a debit to allowance for uncollectible accounts and a credit to the Hodges’s account receivable
b) a debit to Hodges’s account receivable and a credit to uncollectible-account expense
c) a debit to uncollectible-account expense and a credit to Hodges’s account receivable
d) a debit to Hodges’s account receivable and a credit to allowance for uncollectible accounts


Mandy Smith’s account was written off last year. She owed City Company $5,000. Using the allowance method, the journal entry to reinstate her account involves:
a) a debit to Smith’s account receivable and a credit to uncollectible-account expense
b) a debit to allowance for uncollectible accounts and a credit to Smith’s account receivable
c) a debit to uncollectible-account expense and a credit to Smith’s account receivable
d) a debit to Smith’s account receivable and a credit to allowance for uncollectible accounts


The allowance for uncollectible accounts has a current debit balance of $2,550. Uncollectible-account expense is estimated to be 3% of net credit sales. If net credit sales were $250,000, which of the following would be part of the adjusting entry for uncollectible-account expense?
a) debit allowance for uncollectible accounts for $7,500
b) credit allowance for uncollectible accounts for $4,950
c) debit uncollectible-account expense for $7,500
d) debit uncollectible-account expense for $10,050

[jeffp]

One way to think about balance sheet accounts is that debit and credits are for the most part opposites. There are some subtleties that may change the appearance of this but it is the general concept.

Accounts receivable is a debit. The contra account to that which would be the allowance for doubtful accounts is a credit. The allowance brings down the net value of the receivable.

To write off an account (which is represented in the ledger as a debit) you credit that receivable and debit the allowance. Doing this reduces both the balances in the receivable and the allowance.


Mandy Smith’s account was written off last year. She owed City Company $5,000. Using the allowance method, the journal entry to reinstate her account involves:

In my experience past period activity hits the balance sheet reserves. Therefore since it was written off last year reinstating it would be to debit the receivable and a credit to the reserve. It doesn't say that this $5,000 has actually been paid. If an account it completely written off and is paid I've taken the payment and recovery of bad debt income. These methods have passed the review of external audits but its been a while since I've sat in a classroom so this may be one to confirm with a prof. that this is the pure theoretical method.

The allowance for uncollectible accounts has a current debit balance of $2,550. Uncollectible-account expense is estimated to be 3% of net credit sales. If net credit sales were $250,000, which of the following would be part of the adjusting entry for uncollectible-account expense?

As I read this $2550 in AR that had been fully reserved against ended up being paid thereby creating a debit balance in the allowance account (which should be a credit since it is a contra account to the receivable)

If all that is required in the allowance is 3% of net credit sales then I would reduce the 3% expense ($7500) by the $2550 and credit the allowance $4950.