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Financial Accounting-II – Receivables
Under the Percentage of account receivable method
Pokhara University (PU) 2016 Fall Q. No. 12
During the year of 2011 K and K Company made total sales of Rs. 3,00,000 of which 90% are on credit. The Company collected cash Rs. 170,000 from the open account in that year. In the year, 2011, it wrote off Rs. 4,000 as an uncollectible account. The following are balances of accounts at the end of 2010.
Account receivable Rs. 10,000
Allowance for doubtful debt Rs. 1,000 (Cr.)
Company’s past performance shows that 10% of its ending balance of account receivable is expected to be in doubtful debt.
Required:
i. Journal entries for sales, collection and write off of uncollectible accounts.
ii. Estimate the bad debt expenses for 2011 based on the percentage of account receivables also journalize it. In April 2011, a debtor which has been already written off paid its debt of Rs. 1,500. Prepare the journal entries for bad debt recovered. [10]
Solution:
i
Journal entries
In the book of K and K Company
Sales
Cash a/c Dr. Rs. 30,000
Account receivable a/c Dr. Rs. 2,70,000
Sales a/c Rs. 3,00,000
(To record the sales during the year in both cash and credit)
Collection
Cash a/c Dr. Rs. 1,70,000
Account receivable a/c Rs. 1,70,000
(To record the collection of cash)
Write off
Allowance for a doubtful account a/c Dr. Rs. 4,000
Account receivable a/c Rs. 4,000
(To record the bad debt written off)
ii.
Under the percentage of account receivable method
Ending accounts receivable = Beginning accounts receivable + Credit sales – Collected amount – Written off = Rs. 10,000 + 2,70,000 – Rs. 170,000 – Rs. 4,000 = Rs. 1,06,000
Required balance in allowance = 10% of ending accounts receivable = 10% of Rs. 106,000 = Rs. 10,600
| Required balance in the allowance Less: Existing balance Add: Written off Allowance to be made for the year | Rs. 10,600 Rs. 1,000 Rs. 4,000 Rs. 13,600 |
Now,
Journal entries
Bad debt expenses a/c Dr. Rs. 13,600
Allowance for doubtful account a/c Rs. 13,600
(To record the allowance for bad debt expense)
Account receivable a/c Dr. Rs. 1,500
Allowance for doubtful debt a/c Rs. 1,500
(To record the reverse of bad debt written off)
Cash a/c Dr. Rs. 1,500
Account receivable a/c Rs. 1,500
(To record the bad debt recovered)