Sydney Kitchens Pty Ltd builds and installs kitchens offering credit facilities to its customers. The accounting records
Question:
Sydney Kitchens Pty Ltd builds and installs kitchens offering credit facilities to its customers. The accounting records at 30 June 2020 reveal the following. All amounts shown (except where indicated) include GST.
Credit sales (for year) Credit sales returns and allowances (for year) Accounts receivable (balance 30 June 2020) Allowance for doubtful debts (credit balance 30 June 2020, excluding GST) | $ 861 300 67 100 284 488 6 465 |
In the past, the company’s yearly bad debts expense had been estimated at 2.5% of net credit sales revenue. It was decided to compare the current method with an ageing of the accounts receivable method. The following analysis was obtained with respect to the accounts receivable:
Balance | % estimated uncollectable | |||
Accounts not yet due Accounts overdue: 10–30 days 31–60 days 61–120 days 121 days and over | $115 693 60 390 52 140 31 790 24 475 | 1/2 5 10 35 60 | ||
$284 488 |
Required
A. Prepare the journal entries to adjust the Allowance for doubtful debts at 30 June 2020 under:
1. the net credit sales method
2. the ageing of accounts receivable method. (7 marks)
B. Determine the balance in the Allowance for doubtful debts account under both methods.
Accounting
ISBN: 978-1118608227
9th edition
Authors: Lew Edwards, John Medlin, Keryn Chalmers, Andreas Hellmann, Claire Beattie, Jodie Maxfield, John Hoggett