Question

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

At January 1, 2016, Carl's Garage had Accounts Receivable of $ 34,000 and Allowance for Bad Debts had a credit balance of $ 3,000. During the year, Carl's Garage 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 Carl’s transactions that occurred during 2016. The company uses the allowance method.
2.   Post Carl’s transactions to the Accounts Receivable and Allowance for Bad Debts T-accounts.
3.   Journalize Carl’s adjustment to record bad debts expense assuming Carl estimates bad debts as 1% of receivables. Post the adjustment to the appropriate T- accounts.
4.   Show how Carl's Garage will report net accounts receivable on its December 31, 2016 balance sheet.

Answer 1

Solution 1 :-

Sr.No	General description	Dr	Cr
a	Cash	24,000
	Accounts receivable	165,000
	Sales		189,000
b	Cash	133,000
	Accounts receivable		133,000
c	Allowance for bad debts	2,800
	Accounts receivable		2,800

Solution 3:-

Sr.no	General description	Dr	Cr
1	Bad debts	1,650
	Allowance for bad debts		1,650
	(Being 1% estimate on current sales)

Solution 2:-

Accounts receivable
Particulars	Amt	Particulars	Amt
Opening balance b/f	34,000	Collection	133,000
Sales	165,000	Uncollectible receivables	2,800
		Closing balance c/f	63,200
	199,000		199,000
Allowance for bad debts
Particulars	Amt	Particulars	Amt
Uncollectible receivables	2,800	Opening balance b/f	3,000
Closing balance c/f	1,850	Estimate on current sales	1,650
	4,650		4,650
Sales
Particulars	Amt	Particulars	Amt
Closing balance c/f	189,000	Sales	24,000
		Sales	165,000
	189,000		189,000
Cash
Particulars	Amt	Particulars	Amt
Sales	24,000	Closing balance c/f	157,000
Collection	133,000
	157,000		157,000
Bad debts
Particulars	Amt	Particulars	Amt
Estimate on current sales	1,650	Closing balance c/f	1,650
	1,650		1,650

Solution 4 :-

Computation of Net accounts receivable as at December 31, 2016
	Accounts receivable	63,200
Less :	Allowance for bad debts	(1,850)
	Net Accounts receivable	61,350