Allowance method – Journal entry

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Allowance method: Journal entry

There are several entries required in this problem.First, an entry is made to write off the uncollectible account. When cash is received from a company whose account has been written off, there are two additional entries required. First, the Scott Company’s account must be reinstated. Second, the cash payment must be recorded.Journal entry to write off the Scott Company accountOn June 14 a journal entry must be made to write off Scott Company’s overdue account since it has been determined that the account is uncollectible. Under the allowance method of accounting for uncollectible receivables, the Allowance for Bad Debtsaccount, a contra-asset, represents the estimate of accounts that will not be collected.To write off the Scott Company account, the Allowance for Bad Debts account is debited (decreased) for the amount to be written off, and the Accounts Receivable controlling account (and the Accounts Receivable – Scott Company subsidiary ledger account) is credited (decreased). This entry writes off (closes) the customer’s account.Journal entries to reinstate Scott Company’s account and record the cash receivedFirst, to reinstate Scott Company’s account, the Accounts Receivable controlling account (and the Accounts Receivable – Scott Company subsidiary ledger account) is debited (increased), and the Allowance for Bad Debts account is credited (increased) for only the amount received.This entry effectively reverses part of the entry that was made on June 14. There is a tendency to journalize the entry for the full amount previously written off. However, only the amount that is collected should be reinstated unless there is now reason to believe that the remaining amount is collectible.Second, to record the receipt of cash, the Cash account is debited (increased), and the Accounts Receivable controlling account (and the Accounts Receivable – Scott Company subsidiary ledger account) is credited (decreased).Thus, the answer is: 



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