On 31 December 2012 Sicuro Enterprises decided that it needed to finally write off as a bad debt a receivable of $4400 including $400 GST from Simone Pty Ltd in liquidation).If Sicuro uses the allowance method the entry to achieve the write off is:

Question

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Using the allowance method, the bad debt expense has already been recognized in a previous period and an allowance for doubtful debts has been set up. To write off a specific receivable, we need to decrease the allowance and reduce the accounts receivable.

Debit Allowance for Doubtful Debts $4000 - this reduces the allowance by the amount of the specific receivable.

Debit GST Collections $400 - this reverses the previous GST collected on the receivable.

Credit Accounts Receivable $4400 - this reduces the accounts receivable balance by the amount of the specific receivable.

Therefore, the correct entry is B) Debit Allowance for Doubtful Debts $4000, debit GST Collections $400; credit Accounts Receivable $4400.

On 31 December 2012 Sicuro Enterprises Decided That It Needed