In: Accounting
ABC Ltd has accounts receivable of $99 600 at 30 April, 2019. An analysis of the accounts shows these amounts as follows:
Month of sale | Balance of Accounts Receivable | |
April, 2019 | $50 000 | |
March, 2019 | 43 000 | |
February, 2019 | 1 200 | |
January, 2019 | 5 100 | |
December and November, 2018 | 300 | |
99 600 |
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 cheque for $1500 is received from the customer whose account was written off as uncollectable in February. Prepare the journal entry. (2 marks)
(Both account names and figures should be correct in order to
award marks.
Type your response directly into the text box below. Alternatively, you may draft your response in Excel or Word and upload as an attachment into the Files section underneath.)
a)
Receivables | % Uncollectible | Uncollectible | |
Not due | $ 50,000 | 2% | $ 1,000 |
1-30 days past due | $ 43,000 | 5% | $ 2,150 |
31-90 days past due | $ 6,300 | 40% | $ 2,520 |
Over 90 days past due | $ 300 | 50% | $ 150 |
Total | $ 99,600 | $ 5,820 |
Total Estimated Uncollectible = $5820
b)
Account Titles | Debit | Credit |
Bad Debt Expense | $ 3,820 | |
Allowance for Doubtful Accounts | $ 3,820 |
c)
Date | Account Titles | Debit | Credit |
May, 2019 | Accounts Receivable | $ 1,500 | |
Allowance for Doubtful Debts | $ 1,500 | ||
Cash | $ 1,500 | ||
Accounts Receivable | $ 1,500 | ||