Question

During August 2018, Lima Company recorded the following:

• Sales of \(133,300 (\)122,000 on account; \(11,300 for cash). Ignore Cost of Goods Sold.

• Collections on account, \)106,400.

• Write-offs of uncollectible receivables, \(990.

• Recovery of receivable previously written off, \)800.

Requirement:

1. Journalize Lima’s transactions during August 2018, assuming Lima uses the direct write-off method.

2. Journalize Lima’s transactions during August 2018, assuming Lima uses the allowance method

Short answer

(1) Journal entries under direct write-off method are recorded in Step 1.

(2) Journal entries under allowance method are recorded in Step 2.

Step-by-step solution

Journal entries under direct write-off method

Date	Account and explanation	Debit	Credit
August 2018	Accounts receivable	$ 122,000
	Sales Revenue		$ 122,000
	(Sold goods on account)
August 2018	Cash	$ 11,300
	Sales Revenue		$ 11,300
	(Sold goods on cash)
August 2018	Cash	$ 106,400
	Accounts receivable		$ 106,400
	(Collected cash on account.)
August 2018	Bad Debts	$ 990
	Accounts Receivable		$ 990
	(Recorded bad debts expense for the period.)
August 2018	Account Receivable	$800
	Bad Debts		$800
	(Reinstated previously written off account)
August 2018	Cash	$800
	Accounts receivable		$ 800
	(Collected cash on account.)
August 2018	Bad debts	$190
	Allowance for Bad debts		$190
	(Recorded bad debts expense for the period.)

Journal entries under allowance method

Date	Account and explanation	Debit	Credit
August 2018	Accounts receivable	$ 122,000
	Sales Revenue		$ 122,000
	(Sold goods on account)
August 2018	Cash	$ 11,300
	Sales Revenue		$ 11,300
	(Sold goods on cash)
August 2018	Cash	$ 106,400
	Accounts receivable		$ 106,400
	(Collected cash on account.)
August 2018	Allowance for Bad Debts	$ 990
	Accounts Receivable		$ 990
	(Recorded bad debts expense for the period.)
August 2018	Account Receivable	$800
	Allowance for Bad Debts		$800
	(Reinstated previously written off account)
August 2018	Cash	$800
	Accounts receivable		$ 800
	(Collected cash on account.)
August 2018	Bad debts	$190
	Allowance for Bad debts		$190
	(Recorded bad debts expense for the period.)