In: Accounting
olorado Rocky Cookie Company offers credit terms to its
customers. At the end of 2021, accounts receivable totaled
$655,000. The allowance method is used to account for uncollectible
accounts. The allowance for uncollectible accounts had a credit
balance of $38,000 at the beginning of 2021 and $24,000 in
receivables were written off during the year as uncollectible.
Also, $1,800 in cash was received in December from a customer whose
account previously had been written off. The company estimates bad
debts by applying a percentage of 15% to accounts receivable at the
end of the year.
Required:
1. Prepare journal entries to record the
write-off of receivables, the collection of $1,800 for previously
written off receivables, and the year-end adjusting entry for bad
debt expense.
2. How would accounts receivable be shown in the
2021 year-end balance sheet?
Answer:
1.)
Date | Particulars | Debit ($) | Credit ($) |
Allowance for Uncollectible accounts | 24000 | ||
Accounts Receivable | 24000 | ||
(To record writeoff receivables) | |||
Accounts receivable | 1800 | ||
Allowance for Uncollectible Accounts | 1800 | ||
Cash | 1800 | ||
Accounts receivable | 1800 | ||
(To record baddebts recovered) |
Calculation of Amount to be recognised as baddebts:
Opening balance of allowance | 38000 |
Less: write off dduring the year | (24000) |
14000 | |
Add: Recovery from baddebts | 1800 |
15800 | |
Estimation for Allowance (15% x 655000) | 98250 |
Amount to be Adjusted | 82450 |
Adjusted Entry at the end of the year
Particulars | Debit ($) | Credit ($) |
Bad debt Expense | 82450 | |
Allowance for uncollectible Accounts | 82450 | |
(To record adjustment to allowance for uncollectible accounts) |
2.)Disclosure of Accounts Receivable at the year end:
Accounts receivable | 655000 |
Less: Allowance for uncollectible accounts | (98250) |
556750 |