Question

Accounting for uncollectible accounts using the allowance method (percent-of-sales) and reporting receivables on the balance sheet

At January 1, 2013, Mary's Local Store had Accounts Receivable of $ 34,000 and Allowance for Bad Debts had a credit balance of $ 3,000. During the year, Mary's Local Store recorded the following:

a.   Sales of $189,000 ($165,000 on account; $ 24,000 for cash).
b.   Collections on account, $ 133,000.
c.   Write-offs of uncollectible receivables, $ 2,800.

Requirements
1.   Journalize Mary’s transactions that occurred during 2013. The company uses the allowance method.
2.   Post Mary’s transactions to the Accounts Receivable and Allowance for Bad Debts T-accounts.
3.   Journalize Mary’s adjustment to record bad debts expense assuming Mary estimates bad debts as 1% of credit sales. Post the adjustment to the appropriate T- accounts.
4.   Show how Windy Mountain Flagpoles will report net accounts receivable on its December 31, 2015 balance sheet.

Answer 1

Answer:

1.Journalizing Mary’s transactions that occurred during 2013:

	Particulars	Debit ($)	Credit ($)
a	Cash	24,000
	Accounts receivable	165,000
	To Sales		189,000
b	Cash	133,000
	To Accounts receivable		133,000
c	Allowance for Bad debts	2,800
	To Accounts receivable		2,800

2. Posting Mary’s transactions to the Accounts Receivable and Allowance for Bad Debts T-accounts:

Accounts Receivable

Particulars	Amount Dr	Particulars	Amount Cr
To bal b/d	34,000	By Cash	133,000
To Sales	165,000	By Allowance Bad Debts	2,800
		By bal c/d	63,200
Total	199,000	Total	199,000

Allowance for Bad Debts

Particulars	Amount Dr	Particulars	Amount Cr
To Accounts receivable	2,800	By bal b/d	3,000
To Bal c/d	200
Total	3,000	Total	3,000

3) Journalizing Mary’s adjustment to record bad debts expense and posting adjustment to the appropriate T- accounts:

Particulars	Debit ($)	Credit ($)
Bad debts	1,650
To Allowance for Bad debts		1,650

Allowance for Bad Debts

Particulars	Amount Dr	Particulars	Amount Cr
To Accounts receivable	2,800	By bal b/d	3,000
		By bad debts	1,650
To Bal c/d	1,850
Total	4,650	Total	4,650

Bad debts expense account:

Particulars	Amount Dr	Particulars	Amount Cr
To Allowance for Bad debts	1,650	By Bal c/d	1,650
Total	1,650	Total	1,650

4) Net accounts receivable on its December 31, 2015 balance sheet:

	Amount ($)
Accounts receivable	63,200
Less: Allowance for bad debts	1,850
Net accounts receivable on its December 31, 2015	61,350