All right. So here we are with the direct
write-off method example
this time we're dealing with india
company but outside of that everything
looks strictly familiar,
I'm just changing up the method that
we're using so let's get into it.
December 1st india company provided
consulting services of
thousand dollars paid on account during
the year whatever the year is
so we will do twelve one our accounts
receivable goes up,
so we'll debit that for forty thousand
because they're paying on account
and then service revenue will credit for
forty thousand
nothing really changed there putting it
into our folder like we had before
there's our ar folder we'll put in
40000
and then on our balance sheet we will
have 40 000 under ar
that doesn't change nothing's changed
there okay december 15
excuse me 15th uh they collected 15 000
cash from the transaction paid on
account
again we will do december 15th we will
have cash coming in as a debit
15 000 and then we will credit ar for 15000
because we're getting rid of that
accounts receivable so we'll take it out
of our folder so fifteen thousand coming
out,
and we'll take it off of our balance
sheet of fifty two twenty five thousand
we'll take out fifteen thousand,
okay, nothing's changed there. Now the
next one
it says india company estimates that 500
of accounts receivables to be
uncollectible
but remember we're doing the direct
write-off method so we have no I think
period so that would not even
actually exist I don't have to estimate
anything I'm going to wait until I know
I'm not going to get it
so there is no I think period so we can
skip that.
All right. Now let's go into the next
year
the next year is 3-1 this is after
multiple attempts to contract
customers india company determined that
240
will not be collected and elects to
write off the account this is the I
no step so we can go ahead and identify
it as that,
we're going to expense it here, remember
last time what we did is we took it out
of ada
but ada was already expensed we don't
have an ada which means we have nothing
expensed yet so we need to go ahead and
expense it
so we're going to debit bad debt expense
for the 240
and then take out take it out of
accounts receivable
so we'll credit ar for 240.
So in contrast the allowance method we
took it out of ada and ar
in this one we're putting it into bad
debt expense and then taking it out of
ar
because we had no ada there was nothing
expense prior to,
so on our folder we're just going to
take it directly out of the 25 000
so 240 coming out that means our ar
balance now is
24760.
All right. Now we go into 4-1 where we
provide 60 thousand dollars of
consulting
services so we will do accounts
receivable debit of sixty thousand
and then do service revenue of sixty
thousand
so we will add that sixty thousand to
our ar folder that's going to give us
eighty four thousand
seven and again on a balance sheet it'll
be eighty four thousand seven sixty
four thirty, indian company collects
twenty five thousand dollars cash
so we will do again for thirty cash
would be debited for twenty five
thousand
and then we're going to credit accounts
receivable for 25 000,
these two the four 104 30 shouldn't be a
big shock to you we've been doing these
from the beginning really,
we're going to take 25 000 out of the
folder that's going to leave us with
59,760
and again that's what's going to be on
our balance sheet. All right. Then it says
5 2
indy received 140 cash as a payment
from the accounts previously written off
so this is our uh oh
so we made again we made a mistake we
prematurely wrote something off so
we first we need to put it back on to
make sure it's it's correctly
uh taken out of the trash put back on
our books so in order to do that we
would flip
the original transaction that we wrote
it off as which is the three one.
So our debit would be ar for the 140
and then we would credit bad debt
expense we can't expense it because we
didn't actually
lose it they actually did pay it so we
have to take it out of expense,
and then now that it's back on to ar we
put it back into our
envelope we put it back into our balance
sheet this leaves us with 5099
now that we have everything back on the
books now we can take it off correctly
because they paid for it in cash
so we would say cash would be our debit
for 140
and then ar would be our credit for 140.
So we'll take it off of
the ar so leave me with 59.760 and then
on our balance sheet
59 760. So notice the whole time we did
this there was no allowance for doubtful
account there was no secondary envelope
that I had to keep up with
it is I expense it the moment I knew I
wasn't going to get it so there is no I
think,
so that's the big difference between
direct write-off method and the
allowance method. So
hopefully you were able to see that
hopefully made sense but you'll have a
good one.