In: Accounting
ABC Ltd has accounts receivable of $70 600 at 30 April, 2019. An analysis of the accounts shows these amounts as follows:
Month of sale |
Balance of Accounts Receivable |
|
April, 2019 |
$40 000 |
|
March, 2019 |
23 000 |
|
February, 2019 |
3 200 |
|
January, 2019 |
4 100 |
|
December and November, 2018 |
300 |
|
70 600 |
Credit terms are 2/7, n/30. At 30 April, 2019, there is a $2000 credit balance in Allowance for Doubtful Debts before adjustment. The entity uses the ageing of accounts receivable basis for estimating uncollectable accounts. Estimates of bad debts are as follows:
Age of accounts |
Estimated percentage uncollectable |
||
Current |
2% |
||
1-30 days past due |
5% |
||
31-90 days past due |
40% |
||
over 90 days |
50% |
||
Required:
a) Determine the total estimated uncollectable. (1 mark)
b) Prepare the adjusting entry at 30 April, 2019 to record bad debts expense. (1 mark)
c) In May, 2019, a $2 500 customer balance is determined to be uncollectable. Prepare the journal entry. (1 mark)
d) Repeat c) assuming that the direct write-off method is used in this business. (1 mark)
(Both account names and figures should be correct in order to award marks.
Please find attachments for solution
A) Total estimated uncollectable. $14680
B) Debit bad debt expenses $ 14680,credit Allowances for doubtful debt $14680(Sale percentage method)
B) Debit bad debt expenses $12680,credit Allowances for doubtful debt $12680(Account receivable percentage method)
C) Bad debt expenses debit. $2500,credit allowances for doubtful debt $2500
D) Bad debt expenses debit $2500,credit account receivable$ 2500