What is the appropriate journal entry for default in payment?Question 15Answera.Debit: Sales Revenue, Credit: Accounts Receivableb.Debit: Accounts Receivable, Credit: Sales Revenuec.Debit: Accounts Receivable, Credit: Bad Debt Expensed.Debit: Bad Debt Expense, Credit: Accounts Receivable
Question
What is the appropriate journal entry for default in payment?Question 15Answera.Debit: Sales Revenue, Credit: Accounts Receivableb.Debit: Accounts Receivable, Credit: Sales Revenuec.Debit: Accounts Receivable, Credit: Bad Debt Expensed.Debit: Bad Debt Expense, Credit: Accounts Receivable
Solution
The appropriate journal entry for default in payment is d. Debit: Bad Debt Expense, Credit: Accounts Receivable.
Here's the step by step explanation:
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When a customer defaults on a payment, it means that the company will not be able to collect the money that the customer owes. This is considered a loss for the company.
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In accounting, losses are recorded as expenses. In this case, the loss from the customer's default is recorded as a Bad Debt Expense.
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The Bad Debt Expense is debited to increase the expense account.
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On the other hand, the company also needs to decrease the amount of money that it expects to receive from Accounts Receivable (since the customer will not be paying).
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Therefore, Accounts Receivable is credited.
So, the correct journal entry is: Debit Bad Debt Expense, Credit Accounts Receivable.
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