Financial Accounting-II – Receivables
Credit sales method and accounts receivable method
PU BBA | BBA-BI | BBA-TT 2nd Semester
PU 2012 Fall Q. No. 2b
The account of Himal Company as of December 31, 2003, show account receivables, Rs. 1,70,000; Allowance for uncollectible accounts, Rs. 950 (credit balance); Credit sales, Rs. 9,85,000 and sales return and allowance, Rs. 12,000. Prepare journal entries to adjust for possible uncollectible accounts under each of the following assumptions:
i. Uncollectible accounts are estimated at 1% of net credit sales. [3]
ii. The allowance is to be increased to 3% of accounts receivable. [3]
iii. How account receivables are presented in balance sheet according to (b)? [2]
Solution:
i.
Net credit sales = Total credit sales – sales return and allowance = Rs. 9,85,000 – 12,000 = Rs. 9,73,000
Estimated uncollectible expense = 1% of net credit sales = Rs. 9,730
Now,
Journal entry
Uncollectible expense a/c Dr. Rs. 9,730
Allowance for uncollectible expense a/c Rs. 9,730
(To record the allowance for the uncollectible expense of 1% on net credit sales)
ii.
Allowance to be created in current year = Allowance for bad debt – Allowance for uncollectible accounts (Credit balance) = 3% of 1,70,000 – 950 = Rs. 5,100 – 950 = Rs. 4,150
Now,
Journal entry
Uncollectible expense a/c Dr. Rs. 4,150
Allowance for uncollectible expense a/c Rs. 4,150
(To record the allowance for the uncollectible expense of 3% of accounts receivable)
iii.
Himal Company
Partial Balance Sheet
| Current assets | Amount (Rs.) |
| Accounts receivable Less: Allowance for the uncollectible expense | 1,70,000 5,100 |
| Net, accounts receivable | Rs. 1,64,900 |
PU 2014 Fall Q. No. 3a
At the end of the year 2012, Sharma and Company account receivable was Rs, 1,20,000 and the balance in the allowance for doubtful accounts was Rs, 1,000 (Cr.). It sales in that year were Rs. 750,000, 80% of which were on credit. The company wrote off Rs. 2,000 of uncollectible accounts during the year.
[8]
Required: Prepare journal entries to recognize bad debts assuming
(i) amount expected to be uncollectible are 6% of the year-end accounts receivable and
(ii) amount to be uncollectible are 3% of credit sales
Solution:
Journal entry
Bad debt expense a/c Dr. Rs. 8,200
Allowance bad debt expense a/c Rs, 8,200
(To record the allowance for bad debt expense (6% of 1,20,000 – 1,000 + 2,000)
ii.
Journal entry
Bad debt expense a/c Dr. Rs. 18,000
Allowance for bad debt expense a/c Rs. 18,000
(To record the allowance for bad debt expense (3% of 6,00,000)