Question

-8-28A (book/static) Question Help On August 31, 2018, Bouquet Floral Supply had a $140,000 debit balance in Accounts Receivable and a $5,600 credit balance in Allowance for Bad Debts. During September, Bouquet made: • Sales on account, $550,000. Ignore Cost of Goods Sold. • Collections on account, $584,000. • Write-offs of uncollectible receivables, $4,000. Read the requirements Requirement 1. Journalize all September entries using the allowance method, Bad Debts Expense was estimated at 2% of credit sales. Show all September activity in Accounts Receivable, Allowance for Bad Debts, and Bad Debts Expense (post to these T-accounts), Begin by journalizing all September entries using the allowance method. (Record debits first, then credits. Select the explanation on the last line of the journal entry table) Sales on account, $550,000. Ignore Cost of Goods Sold Date Accounts and Explanation Debit Credit Sep. 30 Choose from any list or enter any number in the input fields and then click Check Answer. 12 remaining 1 parts Clear All Check Answer

Answer 1

1.Journal Entries

	Debit	Credit
30 Sept,2018
a. Accounts Receivable	$550,000
Sales Revenue		$550,000
b. Cash	$584,000
Accounts Receivable		$584,000
c. Allowance for Bad debts	$4,000
Accounts Receivable		$4,000
d. Bad debts expense ($550,000*2%)	$11,000	$11,000
Allowance for Bad debts

T-Accounts

Accounts Receivable

Particulars	Debit	Particulars	Debit
Bal b/d	$140,000	Cash	$584,000
Sales Revenue	$550,000	Allowance for bad debts	$4,000
		Bal c/d	$102,000

Allowance for Bad debts Account

Particulars	Debit	Particulars	Debit
Accounts Receivable	$4,000	Bal b/d	$5,600
Bal c/d	$12,600	Bad debts expense	$11,000

Bad Debts Expense

Particulars	Debit	Particulars	Debit
Allowance for bad debts	$11,000	Bal c/d	$11,000

2.Journal Entries

	Debit	Credit
30 Sept,2018
a. Accounts Receivable	$550,000
Sales Revenue		$550,000
b. Cash	$584,000
Accounts Receivable		$584,000
c. Allowance for Bad debts	$4,000
Accounts Receivable		$4,000

T-Accounts   

Accounts Receivable

Particulars	Debit	Particulars	Debit
Bal b/d	$140,000	Cash	$584,000
Sales Revenue	$550,000	Bad Debt expense	$4,000
		Bal c/d	$102,000

Bad debts Expense Account

Particulars	Debit	Particulars	Debit
Accounts Receivable	$4,000	Bal c/d	$4,000

3.Amount of bad debts reported in income statement under two methods

Allowance Method Direct Write off method

Income Statement $11,000 $4,000

The amount of bad debt expense recorded under allowance method best matches with the revenue because under allowance method bad debts expenses are estimated and recorded prior to occurance of actual bad debt in compliance with the matching principle using allowance for bad debt account. It records the expense in the same year when sales are made

4. Allowance Method Direct Write off method

Accounts Receivable $102,000 $102,000

Less:Allowance for bad debts ($12,600) -

Net Receivable $89,400 $102,000

Net allowance under the allowance method is more correct as it shows the amount of receivable company expects to collect.