LO 1 Calculate and record uncollectible accounts expense using the direct writeoff method LESSON 61 Direct WriteOff Method of Recording Uncollectible Accounts Direct WriteOff of Losses from Uncollectible Accounts ID: 652897
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Learning Objectives
© 2015 Cengage Learning. All Rights Reserved.
LO
1 Calculate and record uncollectible accounts expense using the direct write-off method.
LESSON
6-1
Direct Write-Off
Method of Recording
Uncollectible AccountsSlide2
Direct Write-Off of Losses from Uncollectible Accounts
Accounts receivable that cannot be collected are called
uncollectible accounts. Uncollectible accounts are sometimes referred to as bad debts.Canceling the balance of a customer account because the customer does not pay is called writing off the account.Recording uncollectible accounts expense only when an amount is actually known to be uncollectible is called the
direct write-off method.SLIDE 2
LO1
Lesson 6-1
© 2015 Cengage Learning. All Rights Reserved.Slide3
Recording Uncollectible Accounts Expense
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LO1
Lesson 6-1
© 2015 Cengage Learning. All Rights Reserved.
November 4. Wrote off Plaza Electronics’ account
as uncollectible, $182.00. Memorandum No. 62.Slide4
Collecting a Written-Off Account—Direct Write-Off Method
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1. Record an entry in the general journal to debit Accounts
Receivable/Plaza Electronics and credit Uncollectible Accounts Expense for the amount of the receipt, $182.00.
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Lesson 6-1
2. Record an entry in the cash receipts journal to debit Cash and credit Accounts Receivable for the amount of the receipt, $182.00.
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Reopen the Account
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Record the Cash ReceiptSlide5
Lesson 6-1
Audit Your Understanding
1. Why should the amount of an uncollectible account be removed from the assets of a business?SLIDE
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ANSWER
When a customer’s account is believed to be uncollectible
, it should be written off because it is no longer an asset of the business.Lesson 6-1© 2015 Cengage Learning. All Rights Reserved.Slide6
Lesson 6-1
Audit Your Understanding
2. In the direct write-off method, how is an uncollectible account closed?SLIDE
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ANSWER
Uncollectible Accounts Expense is debited;
Accounts Receivable is credited. The customer’s account in the accounts receivable ledger is also credited. Lesson 6-1
© 2015 Cengage Learning. All Rights Reserved.Slide7
Lesson 6-1
Audit Your Understanding
3. Why is the customer account reopened when cash is received for an account previously written off as uncollectible?
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ANSWER
The account is reopened to provide a complete
history of the customer’s credit activities.Lesson 6-1© 2015 Cengage Learning. All Rights Reserved.