Discount Mart utilizes the allowance method of accounting for uncollectible receivables. On December 12 the company receives a $530 check from Chad Thomas in settlement of Thomas's $1,300 outstanding accounts receivable. Due to Thomas's failing health he is closing his company and is expecting to make no further payments to Discount Mart. Journalize this declaration.

Question

Giana Mclean

Business

7 February, 09:46

Discount Mart utilizes the allowance method of accounting for uncollectible receivables. On December 12 the company receives a $530 check from Chad Thomas in settlement of Thomas's $1,300 outstanding accounts receivable. Due to Thomas's failing health he is closing his company and is expecting to make no further payments to Discount Mart. Journalize this declaration.

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Carter Carrillo · Answer 1

Answer: Journals entries to be recorded are as follows:

Debit Cash $530

Credit Accounts receivable $530

(To recognize receipt of cash wrt outstanding receivable)

Debit Allowance for doubtful accounts $770

Credit Accounts receivable $770

(Write-off of Thomas's outstanding accounts receivable)

Explanation: Since Discount Mart receives a check of $530 from Thomas's outstanding receivable, it has to recognize the receipt by applying the journals above. However, due to Thomas's failing health, he is not expected to make any further payment, therefore, the outstanding balance has to be written off against allowance account since Discount Mart adopts the allowance method for accounting for uncollectible receivables.