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ACCT 1A Lecture Notes - Lecture 21: Accounts Receivable, Internal Control, Promissory Note

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School
Irvine Valley College
Department
Accounting
Course
ACCT 1A
Professor
Bradshaw

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Document Summary

When estimating bad debt expense using allowance, companies cah use 2 methods. Method that estimates bad debt expense as a % of sales. Calculated by multiplying sales for the period by some % set by the company. 1-2 % of credit sales, yet will very. Method that estimates bad debt expense as a % of receivables: calculate what the balance in the allowance for bad debts account should be. A. r by % set by company: adjust the allowance account to that calculated balances. The amount adjusted is bad debt expense for the period. Debit balance = greater write-offs than expected. Credit balance = smaller write-offs than expected. Allowance for doubtful debts (to record bad debt expense) Receivables become less collectible when get older. Aging schedule= listing of account by their ages. Provides more accurate estimate of the allowance and doubtful debts and therefor better estimate of bad debts expense.

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Related Questions

A debit balance in the Allowance for Doubtful Accounts:
 
a. is the normal balance for that account.
 
b. indicates that actual bad debt write-offs have exceeded the previous provision for bad debts.
 
c. indicates that actual bad debt write-offs have been less than what was estimated.
 
d. cannot occur if the percentage of sales method of estimating bad debts is used.

Adham Sdn. Bhd. accounts for its uncollectible accounts usingthe allowance method. The company reported the following accountbalances at 31 December 2017.

RM

Accounts receivable

250,000

Less: Allowance for doubtful accounts

12,500

During the year 2017, the company had the following transactionsrelated to receivables.

RM

1.Credit sales

600,000

3.Collections of accounts receivable

680,000

4.Write-offs of accounts receivable

10,800

5.Recovery of bad debts previously written off

3,000

Required:

a) Journalise transactions 1 - 5 above.

b) Post the entries to the two accounts: Accounts receivable andAllowance for doubtful account.

c) Record the bad debt expense for 2017 (in T-account) undereach of the following independent assumptions:

i. The company estimates its bad debt expense based on 5% ofoutstanding account receivable balance.

ii. The company bad debt estimate is 1% of its credit sales.

d) What is the net realisable value of Accounts Receivable at 31December 2017 under assumption (i) above.

Raintree Cosmetic Company sells its products to customers on a credit basis. An adjusting entry for bad debt expense is recorded only at December 31, the company’s fiscal year-end. The 2017 balance sheet disclosed the following: Current assets: Receivables, net of allowance for uncollectible accounts of $48,000 $ 522,000 During 2018, credit sales were $1,840,000, cash collections from customers $1,920,000, and $57,000 in accounts receivable were written off. In addition, $4,800 was collected from a customer whose account was written off in 2017. An aging of accounts receivable at December 31, 2018, reveals the following: Percentage of Year-End Percent Age Group Receivables in Group Uncollectible 0–60 days 70 % 5 % 61–90 days 20 15 91–120 days 5 20 Over 120 days 5 40 Required: 1. Prepare summary journal entries to account for the 2018 write-offs and the collection of the receivable previously written off. 2. Prepare the year-end adjusting entry for bad debts according to each of the following situations: Bad debt expense is estimated to be 4% of credit sales for the year. Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is estimated to be 10% of the year-end balance in accounts receivable. Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is determined by an aging of accounts receivable. 3. For situations (a)–(c) in requirement 2 above, what would be the net amount of accounts receivable reported in the 2018 balance sheet?