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Under the direct write-off method, a customer who owes $3,000 pays $1,000 and the rest will never be collected. What entry records this?
ADebit Cash $1,000 and Irrecoverable debts expense $3,000; credit Receivables $4,000
BDebit Cash $2,000 and Irrecoverable debts expense $1,000; credit Receivables $3,000
CDebit Cash $1,000 and Irrecoverable debts expense $2,000; credit Receivables $3,000
DDebit Cash $1,000; credit Receivables $1,000
Answer & Solution
Correct answer: C. Debit Cash $1,000 and Irrecoverable debts expense $2,000; credit Receivables $3,000
1. Cash of $1,000 is received and debited.
2. The uncollectible remainder = $3,000 - $1,000 = $2,000, debited to Irrecoverable debts expense.
3. The full $3,000 receivable is removed (credited).
4. One distractor mis-totals the credit at $4,000; one swaps the $1,000/$2,000 split; one ignores the write-off. All are 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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