Question

Q3. (25 marks) The following account balances were found for Jetson Corp. at the beginning of its fiscal year, January 1, 2020: Accounts Receivable $1,240,250 Allowance for Doubtful Accounts 19,220 Sales for the year were $8,100,000, of which 60% was on credit, and sales returns were $146,000. Cash collections, excluding recoveries, were $5,416,000. Jetson had also written off $62,500, of which half was later recovered and collected. The company's credit and collection manager has estimated that 6% of outstanding accounts receivable are uncollectible. Instructions Calculate the bad debt expense for the year and record the appropriate journal entry. How do your differentiate between IFRS and ASPE in that method?

Answer 1

Opening balance Sales (Credit only) Allowance for doubtful debts Accounts receivable $1,240,250 Sales returns $4,860,000 Cash $31,250 Allowance for doubtful debts Closing balance $6,131,500 $146,000 $5,416,000 $62,500 $507,000 $6,131,500 $19,220 $31,250 Accounts receivable (Bad debts written off) Closing balance (6% of $507,000) Allowance for Doubtful Debts $62,500 Opening balance Accounts receivable $30,420 (Bad debts recovered) Bad debts expense $92,920 $42,450 Balancing number $92,920 Date Credit Debit $42,450 Dec 31 General Journal Bad debts expense Allowance for Doubtful debts (To record bad debts) $875 $268 Under APSE direct write off of bad debts is permitted that is bad debts can be directly credited to Accounts receivable However under IFRS, direct write off method is not appropriate The reason it is not appropriate because there would be timing difference when revenue is recognised and when bad debts is recognised. The allowance for doubtful debts is in line with matching concept of accounting