Question

A trial balance before adjustment included the following:

Debit Credit

Accounts receivable €80,000

Allowance for doubtful accounts 730

Sales €340,000

Sales returns and allowances 8,000

a)  Give journal entries assuming that the estimate of uncollectible is determined by taking 5% of gross accounts receivable.

Explain your answer

b)  Give journal entries assuming that the estimate of uncollectible is determined by taking 4% of gross accounts receivable and the allowance for doubtful accounts has a debit balance of €1,000.

Explain your answer

Answer 1

a) Particulars Amount

i) Proviaion for account receivable a/c Dr. 3270

To account receivable a/c Cr. 3270

( being provision created for doubtful account)

ii) Profit and loss a/c Dr. 3270

To  proviaion for account receivable a/c 3270

( being for doubtful account charged to profit and loss a/c)

Workiing note: Estimate of uncollectable amount is 5% of 80000 that is 4000, but provision for dobtful account

already show credit balance of 730 , so excess provision required to be created and charged is

4000-730=3270

b) i) Proviaion for account receivable a/c Dr. 3300

To account receivable a/c Cr 3300

   ( being provision created for doubtful account)

ii) Profit and loss a/c Dr. 3300

   To  proviaion for account receivable a/c 3300

( being for doubtful account charged to profit and loss a/c)

Workiing note: Estimate of uncollectable amount is 4% of 80000 that is 3200, but provision for dobtful account

already show debit balance of 1000, so excess provision required to be created and charged is

3200+1000 = 3300