Question

Current Attempt in Progress At December 31, 2019, Sheffield Corp.reported the following information on its balance sheet. Accounts receivable Less: Allowance for doubtful accounts $938,000 73,000 During 2020, the company had the following transactions related to receivables. 1. Sales on account 2. Sales returns and allowances 3. Collections of accounts receivable 4. Write-offs of accounts receivable deemed uncollectible 5. Recovery of bad debts previously written off as uncollectible $3,889,250 55,000 2,763,000 91,000 28,000 Prepare the journal entries to record each of these five transactions. Assume that no cash discounts were taken on the collections of accounts receivable. (Credit account titles are automatically indented when amount is entered Do not indent manually.)

Answer 1

Journal entries:

Transaction	Account title and explanation	Debit	Credit
1	Accounts receivable	$3,889,250
	Sales revenue		$3,889,250
	[Sales on account]
2	Sales returns and allowance	$55,000
	Accounts receivable		$55,000
	[Sales returns]
3	Cash	$2,763,000
	Accounts receivable		$2,763,000
	[Collections from customers]
4	Allowance for doubtful accounts	$91,000
	Accounts receivable		$91,000
	[Write-off of uncollectible]
5	Accounts receivable	$28,000
	Allowance for doubtful accounts		$28,000
	[To reverse account previously written off)
	Cash	$28,000
	Accounts receivable		$28,000
	[To record the collection of accounts receivable]

T-Accounts:

Accounts receivable
Beg.	$938,000	Tran.2	$55,000
Tran.1	$3,889,250	Tran.3	$2,763,000
Tran.5	$28,000	Tran.4	$91,000
		Tran.5	$28,000
End.	$1,918,250
Allowance for doubtful accounts
Tran.4	$91,000	Beg.	$73,000
		Tran.5	$28,000
		Bad debts*	$23,350
		End.	$33,350

*Bad debt expense is balance figure

Given that expected bad debts are $33,350. It should be recorded at ending balance of 'allowance for doubtful accounts'.

Adjusting entry:

Account title and explanation	Debit	Credit
Bad debt expense	$23,350
Allowance for doubtful accounts		$23,350
[To record bad debt expense]

Accounts receivable turnover ratio:

Accounts receivable turnover ratio = Net sales/ Average sales = 3,834,250/1,428,125 = 2.68

Calculations:

Sales	$3,889,250
Sales returns and allowance	($55,000)
Net sales	$3,834,250

Average accounts receivable = (beginning accounts receivable+Ending accounts receivable)/2

= (938000+1918250)/2

= $1,428,125