1. Assume that Ahmed has a credit sale of $2,000 on June 1,2020 to Khalid. By July 1,2020 Khalid requested an additional period of one month more and Ahmed given him the additional period with charging him 1%. By September 1,2020. Ahmed discovered that $200 of the A/R will be uncollectable. Write all necessary entries and decide which method used by Ahmed to record uncollectable A/R
Method used by Ahmed to record uncollectable A/R: Allowance method
1. June 1, 2020:
Accounts Receivable $2,000
Sales $2,000
2. July 1, 2020:
No entry required as an additional period of one month was given to Khalid without any changes to the terms of the sale.
3. September 1, 2020:
Bad Debt Expense $200
Allowance for Doubtful Accounts $200
This entry is made to recognize the uncollectable A/R.
Alternatively, if Ahmed had used the Direct Write-Off method, the entry on September 1, 2020 would be:
Bad Debt Expense $200
Accounts Receivable $200
Under the Direct Write-Off method, specific uncollectable accounts are written off as they become known.