Study Module

The interest is just for 9 months and the cash for the interest has not been received yet, so debit Interest Receivable.

Interest is calculated using the formula:

Principal x interest x time

$16,000 x 5% x 9/12 = $600

Beginning balance $2,000 - Accounts written off (debit Allowance) $4,200 + Credit to Allowance for current year $4,000 = $1,800.

To reverse a previous entry that wrote off a customer balance in the direct write off method, the Accounts Receivable account is debited and Bad Debts Expense is credited.

Pledging of receivables is when a business uses its receivables as security for a loan.

To record the adjusting entry for the expected amount of uncollectibles, debit Bad Debts Expense and credit Allowance for Bad Debts.

A dishonored note should be moved to Accounts Receivable

To write off using the allowance method, debit Allowance for Bad Debts and credit Accounts Receivable.

To record cash payment of an Accounts Receivable after a write off was reversed, debit Cash and credit Accounts Receivable.