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Under the allowance method, a customer owing $3,000 pays $1,000 and the remaining $2,000 is uncollectible. What entry records this?
ADebit Cash $1,000 and Irrecoverable debts expense $2,000; credit Receivables $3,000
BDebit Cash $2,000 and Allowance for receivables $1,000; credit Receivables $3,000
CDebit Cash $1,000 and Allowance for receivables $2,000; credit Receivables $3,000
DDebit Allowance for receivables $3,000; credit Receivables $3,000
Answer & Solution
Correct answer: C. Debit Cash $1,000 and Allowance for receivables $2,000; credit Receivables $3,000
1. Cash received is $1,000, debited.
2. Uncollectible part = $3,000 - $1,000 = $2,000, debited to the allowance under this method.
3. Receivables is cleared for the full $3,000 (credited).
4. One distractor uses the expense (direct method), one swaps the $1,000/$2,000 split, one ignores the cash. All wrong.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §4.4.2 "Allowance Method", p.140_
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