The following information is for the year ended 30 June 2021, prior to any adjustments: Sales for
Question:
The following information is for the year ended 30 June 2021, prior to any adjustments:
Sales for the year | 50,000 | |
Net credit sales for the year | 40,000 | |
Accounts receivable, 30 June 2021 | 16,000 | |
Allowance for bad debts, 30 June 2021 | 300 | Cr |
Ageing of accounts receivable and expected collectable % at 30 June 2021:
1-30 days | 10,000 | 98% |
30-60 days | 3,000 | 95% |
61-90 days | 2,000 | 92% |
Over 90 days | 1,000 | 90% |
Assume the business uses the percentage of sales method for estimating bad debts. It estimates the relevant percentage to be 1%. Remember the percentage of sales method is calculated using Credit Sales * relevant percentage, and determines the expense amount (or what will be added to the existing Allowance for Bad Debts balance). The adjusting entry to record bad debts expense for the year is:
Do not include any punctuation in numerical answers.
Answer |
Answer |
Answer |
Answer |
The balance in the allowance for bad debts account after the above entry is: Answer
. This will be the existing balance (refer to the first table of information) and the above journal.
At the end of the financial year the business uses the ageing of accounts receivable method to confirm the balance of the allowance for bad debts account. This is calculated by multiplying each aged balance with the percentage you expect not to collect (100% - Expected collectable %). This calculation suggests that the balance of the allowance for bad debts should be: Answer
.
The journal to make this adjustment is:
Answer |
Answer |
Answer |
Answer |
The business now identifies an account for $500 that is uncollectable.
The journal to make this write this amount off is:
Answer |
Answer | ||||
Answer |
Answer |
The balance of Net Accounts Receivable after writing off the bad debt will be:
Answer
The above has been dealing with a business that creates an allowance for bad debts. Assume now that the business uses the Direct Write Off method for dealing with bad debts.
The journal to make this write off a $500 account is:
Answer |
Answer | ||||
Answer |
Answer |
Financial Accounting and Reporting
ISBN: 978-0273744443
14th Edition
Authors: Barry Elliott, Jamie Elliott