On 15 March Bramble Lane Outfitters Ltd. learns that a customer owing $2,400 has declared bankruptcy and will pay nothing. The company uses the allowance method. Record the write-off.
On 15 March Bramble Lane Outfitters Ltd. learns that a customer owing $2,400 has declared bankruptcy and will pay nothing. The company uses the allowance method. Record the write-off.
Answer
Dr Allowance for Doubtful Accounts 2400; Cr Accounts Receivable 2400
Accounts - Allowance for Doubtful Accounts - Accounts Receivable - Bad Debts Expense - Cash - Sales Revenue The loss was expensed when it was estimated, so the write-off uses the allowance: **Allowance for Doubtful Accounts** (debit) 2,400 and **Accounts Receivable** (credit) 2,400 to remove the customer. The trap is **Bad Debts Expense**, which counts the loss a second time. Net realisable value is unchanged — gross and allowance both fall by 2,400.
Hermanson Vol 1 ch 9 (write-offs and recoveries; notes receivable — adapted shape 12); Lyryx Intermediate FA Vol 1 §6.3.2; Dauderis & Annand §7.4, §7.5, §7.7 (concept map G9, G10, G12, G13)