Financial and Managerial Accounting
Financial and Managerial Accounting
7th Edition
ISBN: 9781259726705
Author: John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
bartleby

Videos

Question
Book Icon
Chapter 7, Problem 4PSB
To determine

Journal Entry:

It means record of financial data related to business transactions in a journal in a manner so that debit equals credit. It provides an audit trail to the auditor and a means to analyze the effects of transactions to an organization’s financial health.

Rules of Journal Entry:

  • Assets: Increase in asset should be debit and decrease should be credit.
  • Liabilities: Increase in liabilities should be credit and decrease should be debit.
  • Equity: Increase in Equity should be credit and decrease should be debit.
  • Expense: Increase in expense should be debit and decrease should be credit.
  • Revenue: Increase in revenue should be credit and decrease should be debit.

Accounts Receivable:

It refers to the amount that is to be received by a company for providing goods and services on credit. It is an asset account.

Bad Debts:

It refers to the amount that was expected to be received on credit sales but went uncollectible. It is a loss to the company.

Perpetual Inventory System:

It refers to the system to record the transaction related to inventories at the time of their occurrence. Each sale and purchase is recorded at the time they occurred.

To prepare: Adjustment entry to record the given transactions for uncollectible.

Expert Solution & Answer
Check Mark

Explanation of Solution

a.

Sold $685,350 of merchandise (that has cost $500,000) on credit, terms n/30.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Accounts Receivables 685,350
Sales 685,350
(Being sales of $685,350 on credit is recorded )

Table(1)

  • Since, the sales of merchandise on credit will increase the value of accounts receivables and accounts receivable is an asset account, it is debited when it is increased.
  • Since, the sales of merchandise would increase the value of sales in the company and sales is revenue account, it is credited when it is increased.
Date Account Title and Explanation Post ref Debit ($) Credit ($)
Cost of Goods Sold 500,000
Merchandise Inventory 500,000
(Being cost of goods sold is recorded )

Table(2)

  • Since, the cost of merchandise sold is $500,000 and company is using perpetual inventory system.
  • Merchandise inventory account is debited as it is an asset account and it has decreased.

b.
Received $428,300 cash in payment of accounts receivable.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
2016 Cash 482,300
Account Receivable 482,300
(Being payment from an account receivable is recorded)

Table(3)

  • Since, payment from an accounts receivable will increase the cash and cash is an asset account, it is debited when it is increased.
  • Since, payment from an accounts receivable will decrease the accounts receivable and accounts receivable is an asset account, it is credited when it is decreased.

c.

Wrote off $9,350 of uncollectible accounts receivable.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Bad Debt Expense 9,350
Accounts Receivable 9,350
(Being entry is made to record the write off of uncollectible accounts receivable)

Table(4)

  • Since, bad debt expense is an expense account as it is a loss to a company, it is debited with the increase in it.
  • Since, the direct write off of bad debt expense will include the write off of uncollectible amount directly from accounts receivable which will reduce the amount for accounts receivable which is an asset account, it is credited with the decrease in it.

d.

In adjusting the accounts on December 31, the company estimated that 1% of accounts receivable will be uncollectible.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Bad Debt Expense 11,287
Accounts Receivable 11,287
(Being entry is made to record the write off of uncollectible accounts receivable)

Table(5)

  • Since, bad debt expense is an expense account as it is a loss to a company, it is debited with the increase in it.
  • Since, the direct write off of bad debt expense will include the write off of uncollectible amount directly from accounts receivable which will reduce the amount for accounts receivable which is an asset account, it is credited with the decrease in it.

Working note:

Calculation of closing balance of receivables,

Particulars Amount ($)
Total credit sales 685,350
Less: Collections (482,300)
Amount written off (9,350)
Total closing balance 193,700

Table(6)

The ending balance of accounts receivable for the year 2016 is $193,700.

Formula to calculate bad debt expense is,

    BadDebtExpense=[ ( AccountReceivable×PercentageofUncollectible ) ±BalanceBeforeAdjustment ]

Substitute $193,700 for accounts receivable, 1% for percentage for uncollectible and $9,350 for balance before adjustment.

    BadDebtExpense=( $193,700×1% )+$9,350 =$1,937+$9,350 =$11,287

e.

Sold $870,220 of merchandise on credit (that had cost $650,000) terms n/30.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Accounts Receivables 870,220
Sales 870,220
(Being sales of $870,220on credit is recorded )

Table(7)

  • Since, the sales of merchandise on credit will increase the value of accounts receivables and accounts receivable is an asset account, it is debited when it is increased.
  • Since, the sales of merchandise would increase the value of sales in the company and sales are revenue account, it is credited when it is increased.
Date Account Title and Explanation Post ref Debit ($) Credit ($)
Cost of Goods Sold 650,000
Merchandise Inventory 650,000
(Being cost of goods sold is recorded )

Table(8)

  • Since, the cost of merchandise sold is $650,000 and company is using perpetual inventory system.
  • Merchandise inventory account is debited as it is an asset account and it has decreased.

f.

Received $990,800 cash in payment of accounts receivable.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Cash 990,800
Account Receivable 990,800
(Being payment from an account receivable is recorded)

Table(9)

  • Since, payment from an accounts receivable will increase the cash and cash is an asset account, it is debited when it is increased.
  • Since, payment from an accounts receivable will decrease the accounts receivable and accounts receivable is an asset account, it is credited when it is decreased.

g.

Wrote off $11,090 of uncollectible accounts receivable.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Bad Debt Expense 11,090
Accounts Receivable 11,090
(Being entry is made to record the write off of uncollectible accounts receivable)

Table(10)

  • Since, bad debt expense is an expense account as it is a loss to a company, it is debited with the increase in it.
  • Since, the direct write off of bad debt expense will include the write off of uncollectible amount directly from accounts receivable which will reduce the amount for accounts receivable which is an asset account, it is credited with the decrease in it.

h.

In adjusting the accounts on December 31, the company estimated that 1% of accounts receivable will be uncollectible.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Bad Debt Expense 9,773
Accounts Receivable 9,773
(Being entry is made to record the write off of uncollectible accounts receivable)

Table(11)

  • Since, bad debt expense is an expense account as it is a loss to a company, it is debited with the increase in it.
  • Since, the direct write off of bad debt expense will include the write off of uncollectible amount directly from accounts receivable which will reduce the amount for accounts receivable which is an asset account, it is credited with the decrease in it.

Working note:

Calculation of closing balance of receivables,

Particulars Amount ($)
Opening balance 193,670
Total credit sales 870,220
Less: Collections (990,800)
Amount written off (11,090)
Total closing balance 62,000

Table(12)

The ending balance of accounts receivable for the year 2017 is $62,000.

Formula to calculate bad debt expense is,

    BadDebtExpense=[ ( AccountReceivable×PercentageofUncollectible ) ±BalanceBeforeAdjustment ]

Substitute $62,000 for accounts receivable, 1% for percentage for uncollectible and

    ( $11,090$1,937 )=$9,153
for balance before adjustment.
    BadDebtExpense=( $62000×1% )+$9,153 =$620+$9,153 =$9,773

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education
Accounting Changes and Error Analysis: Intermediate Accounting Chapter 22; Author: Finally Learn;https://www.youtube.com/watch?v=c2uQdN53MV4;License: Standard Youtube License