On 1 July 2020 Tran’s Hardware Pty Ltd had an accounts receivable ledger balance of $75,000...

On 1 July 2020 Tran’s Hardware Pty Ltd had an accounts receivable ledger balance of $75,000 debit and a credit balance in the allowance for doubtful debts ledger account of $15,000.

On 3 July Tran’s was contacted by Nails and Hammers Pty Ltd to notify that the business had been declared bankrupt and that they would not be able to pay the $5,500 owing to Tran’s Hardware from a previous credit sale made to them in June 2020.

The business received notification from Panda House Pty Ltd on 25 July 2020 that, $1,100 (GST inclusive) that had previously been written off as uncollectible in May 2020 would be paid in full in August 2020.

On 31 July 2020 Management reassessed the allowance for doubtful debts at year end and decided on a closing balance of $12,200 (GST exclusive) under the ageing of receivables approach.

Required:

Prepare journal entries for each of the above events. Narrations are not required.

General Journal
Date	Account	Debit	Credit

b. The owners have approached you, the businesses accountant and asked if, for the financial year ending 30 June 2021, you would change to the direct write-off method for recording bad debts. How does changing the measurement of bad debts from the allowance method to the direct write-off method influence the usefulness of financial information? Ensure you reference the fundamental qualitative characteristics of information prescribed by the Conceptual Framework for Financial Reporting in your response.

Solutions

Expert Solution

b. There are 2 ways to account for bad debt. The fundamental difference between the 2 methods is in timing difference of bad debts expense recognition and accounting principles applied for accounting bad debt expense. Hence both methods are not same and the recommended method for accounting is allowance method. A direct method of write off is not in accordance with conceptual framework for financial reporting and change to direct method of write off is not recommended compared to allowance method.

The Direct method is not in accordance with accrual concept and matching concept since bad debts are not accrued for each period and bad debts of different period can be charged to sales of different period.

Allowance method is in accordance with accrual concept and matching concept since bad debts are accrued in the period in which sales take place and bad debts expense match the sales recognised in the period.

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Cachet Inc. had a $93,000 balance in Accounts Receivable on July 1. In July, it expects...

Cachet Inc. had a $93,000 balance in Accounts Receivable on July 1. In July, it expects to collect 55% of these receivables and 30% of the July credit sales, which are budgeted at $138,000. What is the budgeted accounts receivable at the end of July? $41,400 $92,550 $138,450 $51,150

REQUIRED: Prepare General Ledger, Accounts Receivable Ledger, Accounts Payable Ledger, Trial Balance, Schedule of Accounts Receivable...

REQUIRED: Prepare General Ledger, Accounts Receivable Ledger, Accounts Payable Ledger, Trial Balance, Schedule of Accounts Receivable and Schedule of Accounts Payable from the following information and Journals using T Accounts with a balance column. Grassley Company completes these transactions during November of the current year (terms for all its credits sales are 2/10, n/30). Nov.1 Purchased $5,058 of office equipment on credit from Brun supply, invoice dated November 1, terms n/10 EOM. 2 Borrowed $88, 500 cash from Wisconsin Bank...

On 1 January 2020, Milkybar Ltd reported an Accounts Receivable balance of $179,000 and an Allowance...

On 1 January 2020, Milkybar Ltd reported an Accounts Receivable balance of $179,000 and an Allowance for Doubtful Debts credit balance of $8,700. The following transactions and adjustments were recorded during the year ended 31 December 2020 (ignore GST): (i) Cash sales were $235,000 and credit sales were $820,000 for the year. (ii) Total accounts receivable collections were $762,000. (iii) A total of $29,600 of accounts receivable was written off as uncollectable during the year. (iv) At year end, an adjustment...

Sheffield Corp. had record sales in 2020. It began 2020 with an Accounts Receivable balance of...

Sheffield Corp. had record sales in 2020. It began 2020 with an Accounts Receivable balance of $500,000 and an Allowance for Doubtful Accounts of $35,000. Sheffield recognized credit sales during the year of $6,705,000 and made monthly adjusting entries equal to 0.5% of each month’s credit sales to recognize bad debt expense. Also during the year, the company wrote off $35,300 of accounts that were deemed to be uncollectible, although one customer whose $4,700 account had been written off surprised...

On September 1, the balance of the Accounts Receivable control account in the general ledger of...

On September 1, the balance of the Accounts Receivable control account in the general ledger of Montgomery Company was $10,600. The beginning balances are posted to each subsidiary account below From the sales journal, transactions are: Sales to Sogard $740, to Hurley $1,160, to Giambi $1,350, and to Fowler $1,240. From the cash receipts journal, transactions are: Cash received from Fowler $1,290, from Sogard $2,320, from Giambi $280, from Andino $1,630, and from Hurley $1,100 From the general journal, transactions...

On September 1, the balance of the Accounts Receivable control account in the general ledger of...

On September 1, the balance of the Accounts Receivable control account in the general ledger of Montgomery Company was $10,960. The customers’ subsidiary ledger contained account balances as follows: Hurley $1,440, Andino $2,640, Fowler $2,060, and Sogard $4,820. At the end of September, the various journals contained the following information. Sales journal: Sales to Sogard $800, to Hurley $1,260, to Giambi $1,330, and to Fowler $1,600. Cash receipts journal: Cash received from Fowler $1,310, from Sogard $3,300, from Giambi $380,...

1) Donaldson Company has the following accounts in its general ledger at July 31: Accounts Receivable...

1) Donaldson Company has the following accounts in its general ledger at July 31: Accounts Receivable $40,000 and Allowance for Doubtful Accounts $2,500. During August, the following transactions occurred. Oct. 15 Sold $30,000 of accounts receivable to Fast Factors, Inc. who assesses a 3% finance charge. 25 Made sales of $900 on Visa credit cards. The credit card service charge is 2%. Instructions Journalize the transactions. 2) Indicate whether each of the following expenditures should be classified as land (L), land improvements (LI),...

On December 31, 2019, Mills Manufacturing Ltd. had a $197,000 balance in its Accounts Receivable and...

On December 31, 2019, Mills Manufacturing Ltd. had a $197,000 balance in its Accounts Receivable and a $10,400 balance in its Allowance for Doubtful Accounts. During 2020, the company made total sales of $858,000, of which $225,000 were cash sales. By the end of the year, Mills had received payments of $552,000 from its customers on account. The company also wrote off as uncollectible $13,300 of its receivables when it learned that these customers had declared bankruptcy. The company was...

On January 1, 2020, Novak Corp. had Accounts Receivable $140,800, Notes Receivable $24,000, and Allowance for...

On January 1, 2020, Novak Corp. had Accounts Receivable $140,800, Notes Receivable $24,000, and Allowance for Doubtful Accounts $12,300. The note receivable is from Willingham Company. It is a 4-month, 9% note dated December 31, 2019. Novak Corp. prepares financial statements annually at December 31. During the year, the following selected transactions occurred. Jan. 5 Sold $18,200 of merchandise to Sheldon Company, terms n/15. 20 Accepted Sheldon Company’s $18,200, 3-month, 8% note for balance due. Feb. 18 Sold $6,400 of...

On July 2020, Sotoma Pty Ltd noticed that a number of its employees have been with...

On July 2020, Sotoma Pty Ltd noticed that a number of its employees have been with the company for a number of years including some who have actually been working for more than 10 years. The company has always provided annual leave and sick leave to its employees. However, our accounting team is not sure whether these employees are entitled to any other employee benefits. It would be much appreciated if you could give the accounting team some clarification on...

Subjects