Delores Cooper operates Cooper Garden Designs. Most of her customers pay cash so she uses the direct write-off method to account for uncollectible accounts receivable. On May 3, 2014, she determined that the $2,600 account for Wilma Benz was uncollectible. During 2014, she had total credit sales of $265,000. The December 31, 2014, balance in accounts receivable was $42,000.
Required
Record the May 3 write-off using the direct write-off method.
Analysis Component:
Delores wants to compare the effect of using the allowance method versus the direct write-off method for recording uncollectible accounts. If uncollectible accounts were estimated at (a) 2% of credit sales or (b) 4% of outstanding accounts receivable, prepare a comparison of the effects on net income of using the allowance methods versus the direct write-off method.