Concept explainers
Introduction: Accounts receivable are legitimately enforceable returns or payments which the organization will get from its clients who have bought its merchandise and services on credit. It is merely a promise to repay the vendor.
To Prepare: Journal entriesfor the given transactions.
Answer to Problem 4PSA
Date | Accounts title and explanation | Debit $ | Credit $ |
2017 | |||
Account receivables | 1,345,434 | ||
Sales | 1,345,434 | ||
(to record credit sales) | |||
Cost of goods sold | 975,000 | ||
Merchandise inventory | 975,000 | ||
(to record cost of sales) | |||
Allowance for doubtful debts | 18,300 | ||
Accounts receivable | 18,300 | ||
(to record writing off uncollectible accounts receivables) | |||
Cash | 669,200 | ||
Account receivables | 669,200 | ||
(to record collection of credit sales) | |||
Bad debt expense1 | 28,169 | ||
Allowance for doubtful debts | 28,169 | ||
(to record | |||
2018 | |||
Account receivables | 1,525,634 | ||
Sales | 1,525,634 | ||
(to record credit sales) | |||
Cost of goods sold | 1,250,000 | ||
Merchandise inventory | 1,250,000 | ||
(to record cost of sales) | |||
Allowance for doubtful debts | 27,800 | ||
Accounts receivable | 27,800 | ||
(to record writing off uncollectible accounts receivables) | |||
Cash | 1,204,600 | ||
Account receivables | 1,204,600 | ||
(to record collection of credit sales) | |||
Bad debt expense2 | 32,199 | ||
Allowance for doubtful debts | 32,199 | ||
(to record bad debts) | |||
Explanation of Solution
Working notes
- To calculate the amount of bad debt:
- To calculate the amount of bad debt:
Closing balance of accounts receivable= credit sales − collections − amount written off
= 1,345,434 − 669,200 − 18,300
= $657,934
Required closing allowance= 1.5% of $657,934
= $9,869
Required adjustment = Unadjusted existing balance + required closing balance
= $18,300 + $9,869
= $28,169
Closing balance of accounts receivable= credit sales − collections − amount written off
= 1,525,634 − 1,204,600 − 27,800
= $293,234
Required closing allowance= 1.5% of $293,234
= $4,399
Required adjustment = Unadjusted existing balance + required closing balance
= $27,800 + $4,399
= $32,199
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Chapter 7 Solutions
Loose Leaf for Financial Accounting: Information for Decisions
- Allowance Method for Accounting for Bad Debts At the beginning of 2016, EZ Tech Companys Accounts Receivable balance was $140,000, and the balance in Allowance for Doubtful Accounts was $2,350 (Cr.). EZ Techs sales in 2016 were $1,050,000, 80% of which were on credit. Collections on account during the year were $670,000. The company wrote off $4,000 of uncollectible accounts during the year. Required Prepare summary journal entries related to the sale, collections, and write-offs of accounts receivable during 2016. Prepare journal entries to recognize bad debts assuming that (a) bad debts expense is 3% of credit sales and (b) amounts expected to be uncollectible are 6% of the year-end accounts receivable. What is the net realizable value of accounts receivable on December 31, 2016, under each assumption in part (2)? What effect does the recognition of bad debts expense have on the net realizable value? What effect does the write-off of accounts have on the net realizable value?arrow_forwardJars Plus recorded $861,430 in credit sales for the year and $488,000 in accounts receivable. The uncollectible percentage is 2.3% for the income statement method, and 3.6% for the balance sheet method. A. Record the year-end adjusting entry for 2018 bad debt using the income statement method. B. Record the year-end adjusting entry for 2018 bad debt using the balance sheet method. C. Assume there was a previous debit balance in Allowance for Doubtful Accounts of $10,220, record the year-end entry for bad debt using the income statement method, and then the entry using the balance sheet method. D. Assume there was a previous credit balance in Allowance for Doubtful Accounts of $5,470, record the year-end entry for bad debt using the income statement method, and then the entry using the balance sheet method.arrow_forwardBristax Corporation recorded $1,385,660 in credit sales for the year, and $732,410 in accounts receivable. The uncollectible percentage is 3.1% for the income statement method and 4.5% for the balance sheet method. A. Record the year-end adjusting entry for 2018 bad debt using the income statement method. B. Record the year-end adjusting entry for 2018 bad debt using the balance sheet method. C. Assume there was a previous debit balance in Allowance for Doubtful Accounts of $20,550; record the year-end entry for bad debt using the income statement method, and then the entry using the balance sheet method. D. Assume there was a previous credit balance in Allowance for Doubtful Accounts of $17,430; record the year-end entry for bad debt using the income statement method, and then the entry using the balance sheet method.arrow_forward
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