Question

Specifically the allowance method of accounting for the net realizable value of this current asset.

Please provide journal entries for the following: (assume there are no beginning balances)

3/31: $100,000 of merchandise was sold on account. The gross profit rate is 50%.

4/10: $20,000 of these receivables were paid within the discount period. The payment terms were 2%,10,n30.

4/30: $65,000 of the receivables were paid outside of the discount period,

4/30: $120,000 of new credit sales and $20,000 of cash sales were made this month

5/30: The credit manager "ages" the receivables (see slide #27 in the lecture slides .ppt in the class Files). He creates an allowance for debt debts of $26,610.

6/30:    $800 of receivables are determined to be uncollectible and are written off.

What the ending balances are in the allowance for bad debts and accounts receivable.

Show how this assets would be reported on the balance sheet?

How would net sales be reported on the income statement?

Answer 1

Date	General Journal	Debit	Credit
3/31	Accounts receivable	100000
	Sales revenue		100000
	(To record merchandise sold on account)
3/31	Cost of goods sold ($100000 x 50%)	50000
	Merchandise inventory		50000
	(To record the cost of goods sold)
4/10	Cash ($20000 - $400)	19600
	Sales discount (2% x $20000)	400
	Accounts receivable		20000
	(To record collections within discount period)
4/30	Cash	65000
	Accounts receivable		65000
	(To record collections outside discount period)
4/30	Cash	20000
	Accounts receivable	120000
	Sales revenue		140000
	(To record merchandise sales)
4/30	Cost of goods sold ($140000 x 50%)	70000
	Merchandise inventory		70000
	(To record the cost of goods sold)
5/30	Bad debts expense	26610
	Allowance for bad debts		26610
	(To record bad debts expense)
6/30	Allowance for bad debts	800
	Accounts receivable		800
	(To record write-off of uncollectible receivables)

Ending balance in Allowance for bad debts = $26610 - $800 = $25810

Ending balance in Accounts receivable = $100000 - $20000 - $65000 + $120000 - $800 = $134200

Balance Sheet (Partial)
Current assets
Accounts receivable	134200
Less: Allowance for bad debts	25810
Net accounts receivable	108390

Income Statement (Partial)
Sales	240000
Less: Sales discounts	400
Net sales	239600