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Under the direct write-off method, a company decides a $3,000 customer balance will never be received. What entry records the write-off?
ADebit Receivables $3,000; credit Irrecoverable debts expense $3,000
BDebit Allowance for receivables $3,000; credit Receivables $3,000
CDebit Irrecoverable debts expense $3,000; credit Cash $3,000
DDebit Irrecoverable debts expense $3,000; credit Receivables $3,000
Answer & Solution
Correct answer: D. Debit Irrecoverable debts expense $3,000; credit Receivables $3,000
1. Under the direct method, the expense absorbs the loss, so Irrecoverable debts expense is debited.
2. The customer balance is removed, so Receivables is credited.
3. The direct method does not use an allowance, so the allowance option is wrong.
4. No cash is involved in a pure write-off, so crediting Cash is wrong; reversing the entry is also wrong.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §4.4.1 "Direct Write-off Method", p.138_
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