Ace Plus is a home improvement store that began operations last year. In December of the first year of operations, Ace Plus had accounts receivable totaling $50,000 and the store’s manager, Bill Henrickson, estimated that $1,500 of those receivables will not be collected.

In January, Ace Plus decided to write off as uncollectible a $500 receivable owed by Roman Grant.

Benny, the new accountant at Ace Plus, is struggling with receivables. Please advise him as to what journal entries he should have made to record the situations described above. Assume Ace Plus uses the Allowance method for write-offs.

(1) What should the December journal entry look like?

(2) What should the January journal entry look like?

(3) What type of account is Allowance for Doubtful Accounts and what type of balance does it have, debit or credit?

(4) Briefly explain why a company might use the Direct Write-Off method instead of the Allowance method? Does it even make a difference?