Q2: Show the journal entries for recognising bad debts expense using the ‘allowance’ method and the ‘direct write-off’ method. Include the effect on GST and narrations.

A:

Allowance method

DR  Bad debts expense 

        CR  Allowance for doubtful debts 

(Estimated bad debts expense) 

Direct write-off method

DR  Bad debts expense 

DR GST collections 

        CR  Accounts receivable 

(Write-off individual customer’s account as bad)