Entries for Bad Debt Expense under the Direct Write-Off and Allowance Methods

The following selected transactions were taken from the records of Shipway Company for the first year of its operations ending December 31:

Apr. 13.

Wrote off account of Dean Sheppard, $3,430.

May 15.

Received $1,720 as partial payment on the $4,560 account of Dan Pyle. Wrote off the remaining balance as uncollectible.

July 27.

Received $3,430 from Dean Sheppard, whose account had been written off on April 13. Reinstated the account and recorded the cash receipt.

Dec. 31.

Wrote off the following accounts as uncollectible (record as one journal entry):

Paul Chapman	$2,300
Duane DeRosa	1,720
Teresa Galloway	1,030
Ernie Klatt	1,440
Marty Richey	510

31.

If necessary, record the year-end adjusting entry for the uncollectible accounts.

If no entry is required, select "No entry" and leave the amount boxes blank. If an amount box does not require an entry, leave it blank.

a. Journalize the transactions under the direct write-off method.

Apr. 13	Bad Debt Expense	fill in the blank bee901fb301f07e_2	fill in the blank bee901fb301f07e_3
	Accounts Receivable-Dean Sheppard	fill in the blank bee901fb301f07e_5	fill in the blank bee901fb301f07e_6
May 15	Cash	fill in the blank bee901fb301f07e_8	fill in the blank bee901fb301f07e_9
	Bad Debt Expense	fill in the blank bee901fb301f07e_11	fill in the blank bee901fb301f07e_12
	Accounts Receivable-Dan Pyle	fill in the blank bee901fb301f07e_14	fill in the blank bee901fb301f07e_15
July 27	Accounts Receivable-Dean Sheppard	fill in the blank bee901fb301f07e_17	fill in the blank bee901fb301f07e_18
	Bad Debt Expense	fill in the blank bee901fb301f07e_20	fill in the blank bee901fb301f07e_21
July 27	Cash	fill in the blank bee901fb301f07e_23	fill in the blank bee901fb301f07e_24
	Accounts Receivable-Dean Sheppard	fill in the blank bee901fb301f07e_26	fill in the blank bee901fb301f07e_27
Dec. 31	Bad Debt Expense	fill in the blank bee901fb301f07e_29	fill in the blank bee901fb301f07e_30
	Accounts Receivable-Paul Chapman	fill in the blank bee901fb301f07e_32	fill in the blank bee901fb301f07e_33
	Accounts Receivable-Duane DeRosa	fill in the blank bee901fb301f07e_35	fill in the blank bee901fb301f07e_36
	Accounts Receivable-Teresa Galloway	fill in the blank bee901fb301f07e_38	fill in the blank bee901fb301f07e_39
	Accounts Receivable-Ernie Klatt	fill in the blank bee901fb301f07e_41	fill in the blank bee901fb301f07e_42
	Accounts Receivable-Marty Richey	fill in the blank bee901fb301f07e_44	fill in the blank bee901fb301f07e_45
Dec. 31	No entry	fill in the blank bee901fb301f07e_47	fill in the blank bee901fb301f07e_48
	No entry	fill in the blank bee901fb301f07e_50	fill in the blank bee901fb301f07e_51

Feedback

Remember that under the direct write-off method, Bad Debt Expense is not recorded until the customer's account is determined to be worthless.

Under the allowance method once a customer account is identified as uncollectible, it is written off against the allowance account.

b. Journalize the transactions under the allowance method. Shipway Company uses the percent of credit sales method of estimating uncollectible accounts expense. Based on past history and industry averages, 3% of credit sales are expected to be uncollectible. Shipway Company recorded $557,600 of credit sales during the year.

Apr. 13	Allowance for Doubtful Accounts	fill in the blank b95418f90ff3039_2	fill in the blank b95418f90ff3039_3
	Accounts Receivable-Dean Sheppard	fill in the blank b95418f90ff3039_5	fill in the blank b95418f90ff3039_6
May 15	Cash	fill in the blank b95418f90ff3039_8	fill in the blank b95418f90ff3039_9
	Allowance for Doubtful Accounts	fill in the blank b95418f90ff3039_11	fill in the blank b95418f90ff3039_12
	Accounts Receivable-Dan Pyle	fill in the blank b95418f90ff3039_14	fill in the blank b95418f90ff3039_15
July 27	Accounts Receivable-Dean Sheppard	fill in the blank b95418f90ff3039_17	fill in the blank b95418f90ff3039_18
	Allowance for Doubtful Accounts	fill in the blank b95418f90ff3039_20	fill in the blank b95418f90ff3039_21
July 27	Cash	fill in the blank b95418f90ff3039_23	fill in the blank b95418f90ff3039_24
	Accounts Receivable-Dean Sheppard	fill in the blank b95418f90ff3039_26	fill in the blank b95418f90ff3039_27
Dec. 31	Allowance for Doubtful Accounts	fill in the blank b95418f90ff3039_29	fill in the blank b95418f90ff3039_30
	Accounts Receivable-Paul Chapman	fill in the blank b95418f90ff3039_32	fill in the blank b95418f90ff3039_33
	Accounts Receivable-Duane DeRosa	fill in the blank b95418f90ff3039_35	fill in the blank b95418f90ff3039_36
	Accounts Receivable-Teresa Galloway	fill in the blank b95418f90ff3039_38	fill in the blank b95418f90ff3039_39
	Accounts Receivable-Ernie Klatt	fill in the blank b95418f90ff3039_41	fill in the blank b95418f90ff3039_42
	Accounts Receivable-Marty Richey	fill in the blank b95418f90ff3039_44	fill in the blank b95418f90ff3039_45
Dec. 31	Bad Debt Expense	fill in the blank b95418f90ff3039_47	fill in the blank b95418f90ff3039_48
	Allowance for Doubtful Accounts	fill in the blank b95418f90ff3039_50	fill in the blank b95418f90ff3039_51

Feedback

Remember that under the direct write-off method, Bad Debt Expense is not recorded until the customer's account is determined to be worthless.

Under the allowance method once a customer account is identified as uncollectible, it is written off against the allowance account.

c. How much higher (lower) would Shipway Company's net income have been under the direct write-off method than under the allowance method? Higher by $fill in the blank 4bd4c9ff1007029_2