Question

Jaffer Sports Ltd.                                              
Accounts Receivable and Bad Debts                                               
                                              
Assume that you are working as credit manager of Jaffer Sports Ltd. At the end of the financial year ended 30 June 2017, you have gathered the following information about the company's accounts receivable and credit losses during the current year.                                              
                                              
                                              
                                              
   Net credit sales for the year………………………………………………………………………. £ 3,000,000                                          
   Accounts receivable at the year end…………………………………………………………. £ 360,000                                          
   Uncollectible accounts receivable:                                          
       Actually written off during the year………………………………………….£ 43,650                                      
       "Estimated portion of year - end receivable
expected to prove uncollectible (per aging schedule)                   £ 18,000"                                      
                                              
Instruction:   Prepare journal entry summarizing the recognition of uncollectible accounts expense for the entire year under each of the following independent assumptions:                                              
                                              
                                              
a)   Uncollectible accounts expense is estimated at an amount equal to 1.5% of the net credit sales.                                          
                                              
b)   Uncollectible accounts expense is recognized by adjusting the balance in the Allowance for Doubtful Accounts to the amount indicated in the year - end aging schedule. The balance in the allowance account at the beginning of the current year was £ 15,000 . (Consider the effect of the write - offs during the year upon the balance in the Allowance for Doubtful Accounts).                                          
                                              
                                              
                                              
                                              

Answer 1

Calculation of uncollectible accounts expense: Uncollectible accounts expense= Net Credit Sales Rate =3,000,000 ~ 1.5% = 45,000 Credit Debit 45,000 Account Titles Uncollectible accounts expense Allowance for doubtful accounts (To record estimated uncollectible expense) 45,000

b) Calculation of increase in allowance of doubtful accounts: Allowance for doubtful expense=Uncollectibles - Balancein Allowance account =18.000-15,000 =3,000 Credit Debit 3.0001 Account Titles Uncollectible accounts expense Allowance for doubtful accounts (To record an increase in allowance of doubtful accounts) 3,000