Wize University Introduction to Financial Accounting Textbook > Receivables
Writing-off Accounts
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Writing-off Accounts
When an account is deemed to be definitely uncollectible, meaning that the company believes there is a 100% probability that the account will not be collected, the account must be removed from the company's books, this is called a write-off.
Writing-off an Account (Allowance Method)
- Account closed and completely removed from books
- Journal entry must do 2 things:
- Decrease accounts receivables (credit)
- Decrease allowance for doubt accounts (debit)
Writing-off an Account (Direct Write-off Method)
- Account closed and completely removed from books
- Journal entry must do 2 things:
- Decrease accounts receivables (credit)
- Increase bad debt expense (debit)
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Example: Writing-off Accounts
Prepare the journal entry to record the following transaction:
On July 27th, 2020, ABC Inc. received a notice regarding a customer's bankruptcy. The notice indicated that the customer would not be honouring the $5,000 account they currently have open with ABC Inc, the account was written off on that day.
Practice: Writing-off Accounts
Prepare the journal entry to record the following transaction:
Wrote-off a $6,000 account from a customer that was deemed to be 100% uncollectible.
Transactions:
| Account | Debit | Credit |
|---|---|---|