Accounting for Bad Debts
Response to the following problem:
The following data were associated with the accounts receivable and uncollectible accounts of Julia Jay, Inc., during 2009:
a. The opening credit balance in Allowance for Bad Debts was $600,000 at January 1, 2009.
b. During 2009, the company realized that specific accounts receivable totaling $630,000 had gone bad and had been written off.
c. An account receivable of $35,000 was collected during 2009. This account had previously been written off as a bad debt in 2008.
d. The company decided that Allowance for Bad Debts would be $650,000 at the end of 2009.
1. Prepare journal entries to show how these events would be recognized in the accounting system using:
a. The direct write-off method.
b. The allowance method.
2. Discuss the advantages and disadvantages of each method with respect to the matching principle.