Question

Week 9: Accounts Receivable Lecture Demonstration Bad Debts Exercise Doubtful Debts-Net Credit Sales and Ageing Methods Recording transactions for bad and doubtful debts Transactions for Bradford Ltd's Accounts Receivable for the year ending 30 June 2018 are listed below. On 1 July of the previous year, the opening balance of the Allowance for Doubtful Debts account was a credit of $1.960 G S T is 10%. Wrote off the $770 account of Gum Ltd as uncollectable Received 50% of the $704 balance owed by J Wiley and wrote off the remainder as a bad debt Aug. 3 Sept 6 Oct 16 Recorded the collection of $528 from G. Rhodes in full payment of her account, which had been written off earlier as a bad debt Wrote off the accounts of Pauley Ltd, $1,210 and R. Donley, $396, as bad debts Jan 15 Received $550 from E. Darkins in full payment of his account, which had been written off earlier as a bad debt March 9 Receive 25% of the $2,860 owed by North Ltd and wrote off the remainder as a bad debt April 8 Estimated bad debts expense for the year to be 1% of net credit sales of $503,500 (excluding G.S.T.) June 30 Record the General Journal entries for each of the above transactions. A. B. Prepare the Allowance for Doubtful Debts account. i) Show the information that will appear in the income statement for the year ended 30 June 2018 after allowing for doubtful debts. ii) Show how accounts receivable will appear in the balance sheet as at 30 June 2018. C. Instead of basing the allowance on net credit sales, the allowance is based on an ageing of Accounts Receivable and that $8,921 of the Accounts Receivable at 30 June were estimated to be uncollectable. Determine the adjustment necessary to bring the allowance account to the desired balance and prepare the Allowance for Doubtful Debts accounts ) Show the information that will appear in the income statement for the year ended 30 June 2018 after allowing for doubtful debts. i) Show how accounts receivable will appear in the balance sheet as at 30 June 2018.

I understand part A, but I do not understand B and C. I only need B and C. If possible, can you give a detail solution. Thank you.

Answer 1

			Allowance for Doubtful Debt Account
B	Date	Particulars	Amount	Date	Particulars	Amount
		Bad Debt Expense ( see working)	4873	1 July,2017	Balance b/d	1960
	30 June,18	Balance C/d	5035	30 June,18	Allowance for doubtful debt-expense	7948
			9908			9908
	Allowance for Doubtful Debt to be made is 1% of Credit sales $503500 i.e. $5035.
	i)	Income Statement:
		Operating Expense:
		Bad Debt Expense		4873
		Add: Ending Allowance for Doubtful Debt- expense		5035
		Less: Beginning Allowance for Doubtful Debt- expense		1960
				7948
	ii)	Balance Sheet:
		Current Account
		Account Receivable		xxx
		Less: Allowance for Doubtful Debt		7948
		Accounts Receivable Net
C	If we use Accounts Receivable Aging Method instead of net credit sales method
	Allowance for Doubtful Debt (given)			$8,921
	Allowance for Doubtful Debt under net credit sales			$5,035
	Difference of Allowance to be created			$3,886
		Journal Entry:
	30 June,18	Bad Debts Expense	3886
		Allowance for Doubtful Debt		3886
	i)	Income Statement:
		Operating Expense:
		Bad Debt Expense		xxx
		Add: Allowance for Doubtful Debt-expense		3886
	ii)	Balance Sheet:
		Current Account
		Account Receivable		xxx
		Less: Allowance for Doubtful Debt		3886
		Accounts Receivable Net
		Working Notes Bad Debt Expense:
1	3-Aug	Uncollectable amount from Gun Ltd		770
2	6-Sep	50 % of $704 Bad debt		352
3	15-Jan	Bad Debt of Pauley Ltd		1210
4	15-Jan	Bad Debt of R. Donley		396
5	8-Apr	75 % of $2860 not recoverable		2145
				4873