Accounting As at 28 February 2021, ACY Limited (ACY) had accounts receivable amounted to $23,800 (being gross

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Question:

Accounting As at 28 February 2021, ACY Limited (“ACY”) had accounts receivable amounted to $23,800 (being gross amounts of $30,000, net of allowance for doubtful accounts of $6,200). The balance arose from: (i) a credit sale of $22,000 to a customer, BBA Limited (“BBA”), on 27 February 2021 with terms 5/10, n/30; and (ii) a balance of $8,000 from a credit sale made to a one-time customer, CSS Limited (“CSS”), in late 2020. During the month of March 2021: - On 5 March, BBA fully settled the amount due. - On 15 March, service revenue of $25,000 was earned on account with a credit period of 30 days allowed. No discount was offered in this transaction. - On 20 March, this was evidenced that collection of balance due from CSS shall be impossible, and the company authorized to write off all the related balance on the same date. As at 31 March 2021, based on past experience, this was estimated that:

(i) 10% of the accounts receivable not overdue would be uncollectible;

(ii) 15% of those overdue within one to two months would be uncollectible; and

(iii) 50% of those overdue for three months or longer would be uncollectible. ACY adopts the gross method in accounting for sales and purchase discounts.

Required:

(a) Prepare all the journal entries for ACY for the month ended 31 March 2021.

(b) Explain the rationale for ACY to accrue for the estimated uncollectible receivable. .