Journalize the following transactions in the accounts of Zippy Interiors Company, a restaurant supply company that uses the allowance method of accounting for uncollectible receivables: May 24 Sold merchandise on account to Old Town Cafe $18,450. The cost of goods sold was $11,000. Sept. 30 Received $6,000 from Old Town Cafe and wrote off the remainder owed on the sale of May 24 as uncollectible. Dec. 7 Reinstated the account of Old Town Cafe that had been written off on September 30 and received $12,450 cash in full payment. For a compound transaction, if an amount box does not require an entry, leave it blank.

Prepare the journal entry to record the sale of merchandise on account, and the cost of goods sold.

Date Particulars Debit Credit

May 24 Accounts receivable - O T Cafe $18,450

Sales $18,450

(To record sale of merchandise on account)

May 24 Cost of merchandise sold $11,000

Merchandise inventory $11,000

(To record the cost of goods sold)

Table (1)

Sale on account increases accounts receivable and sales revenue account. Hence, an increase in accounts receivable (asset account) is debited with $18,450 and an increase in sales revenue (stockholders' equity account) is credited with $18,450.

Cost of goods sold is $11,000. Thus the expense incurred must be recognized by increasing cost of goods sold account and the merchandise inventory which is sold out should be decreased to record the inventory which is sold out. Hence, an increase in Cost of goods sold (expense account) is debited with $11,000 and a decrease in Merchandise inventory (asset account) is credited with $11,000.

2.

Prepare the journal entry to record the collection of cash and write-off of uncollectible accounts, under direct write-off method.

Date Particulars Debit Credit

September 30 Cash $6,000

Allowance for doubtful accounts $12,450

Account receivable - O T Cafe $18,450

(To record cash collection and write-off of uncollectible account receivable)

Table (2)

To record the collection of cash on account, cash account must be increased and accounts receivable must be decreased by $6,000.

To record this write-off of uncollectible receivables of $12,450 ($18,450-$6,000) ($18,450-$6,000) under allowance method, both allowance for doubtful accounts and accounts receivable must be decreased by $12,450