Question

1. Ameer Co. uses the gross method to record sales made on credit. On April 1, 2020, it made sales of $150,000 with terms 3/15 n/45. On April 9, 2020, Ameer Co. received full payment for the April 1 sale.

1. Prepare the required journal entries for Ameer Co. (gross method)
2. Prepare the journal entries showing what the Net Method would look like

2. Same info as above but change the date that payment was received to April 30, 2020

1. Prepare the required journal entries forAmeerCo. (gross method)
2. Prepare the journal entries showing what the Net Method would look like

3. In your own words explain the difference between direct write-off method and allowance method for recognizing bad debt expense

4. The trial balance before adjustment of Reservoir Company reports the following balances:

                                                                                        Dr.                   Cr.    

Accounts receivable                                                $600,000

Allowance for doubtful accounts                                                $       10,000

Instructions

1. Prepare the entry for estimated bad debts assuming that doubtful accounts are estimated to be 5% of accounts receivable.
2. Show the T-accounts and how you got the correct Bad Debt Expense

Answer 1

	Payment received on 9th April i.e. discount availed
a.)	Gross method	(recognise initial sale on gross amount)
	Date		Debit	Credit		Calcualtion for your reference
	April, 1	Accounts receivable	150000
		Sales		150000
		( to book sales on gross amount)
	April, 9	Cash	145500
		Sales discoutn	4500			(150000*3%)
		Accounts receivable		150000
		( to book payment received)
b)	Net Method	(recognise initial amount on net of discount amount)
	Date		Debit	Credit		Calcualtion for your reference
	April, 1	Accounts receivable	145500			net of discount of (150000*3%)
		Sales		145500
		( to book sales on net amount)
	April, 9	Cash	145500
		Accounts receivable		145500
		( to book payment received)
	Payment received on 30th April i.e. discount not availed
a.)	Gross method	(recognise initial sale on gross amount)
	Date		Debit	Credit		Calcualtion for your reference
	April, 1	Accounts receivable	150000
		Sales		150000
		( to book sales on gross amount)
	April, 30	Cash	150000
		Accounts receivable		150000
		( to book payment received)
b)	Net Method	(recognise initial amount on net of discount amount)
	Date		Debit	Credit		Calcualtion for your reference
	April, 1	Accounts receivable	145500			net of discount of (150000*3%)
		Sales		145500
		( to book sales on net amount)
	April, 30	Cash	150000
		Accounts receivable		145500
		Sales discount forfeited		4500		(150000*3%)
		( to book payment received)

Question. 2	In direct write off method we charge bad debt when we realise certain sum will not be received. In direct method we directly reduce receivable balance by the amount of bad debt. Under allowance method we create a reserve on the on the basis of sales or receivable to charge any future bad debts against that reserve.
a)	Allowant for bad debts = 5% of 600000 = 30000
	The reserve is already standing at 10000, so we need to create anddition reserve for 20000.
			Dr	Cr
		Bad debt	20000
		Allowance for doubtful accounts		20000
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