Question

Smith Ltd. was in the process of preparing year-end adjusting entries for the year ended December 31, 2018. Smith Ltd. had the following balance in their books (ledger):

	Dr.	Cr.
Accounts Receivable	$91,000
Allowance for Sales Discounts		$4,500
Allowance for Sales Returns		3,300
Allowance for doubtful accounts		12,200

Additional Information:

• Total Credit Sales during 2018:     $66,000

The Company estimated the following for the year-end December 31, 2018 purposes:

Expected Sales discounts	$3,500
Expected Sales returns	4,100
Accounts receivable should be written off	4,400
Using percentage of credit sales method, the company estimated 10% of the credit sales might NOT be collected

Required:
a) Prepare the year-end entries for the above that are related to accounts receivable
b) Calculate the amount that would be displayed on SFP for net accounts receivable

Answer 1

Clearly indicates here accounts receivable which implies "debtor " I.e (goods sold on credit) so amount receivable for the amount of goods sold her given is $91000 (but before adjustments) since it is in process clearly given in question  so we have to find the accounts receivable after adjustments

Two situations arises here

I) account receivables should be written off -4400 it implies the goods which sold to respected debtor is not able to recover full amount so it's irrecoverable so it should be deducted from accounts receivable and in future if that amount is recovered then the amount which is reversed earlier should be set off with the amount received now but in this scenario only bad debts written off given and not clear of recovering later so entry for bad debts written of is

Dated	Particulars	Debit	Credit
31st Dec'2018	Bad debts...................................Dr	$4,400
	To Accounts receivables.............		$4,400
	(Being bad debts written off to the extent not recovered)

II) here intially assessed provison but after the completion they comes to clarity of provisions so earlier assessed provisions to be reversed with new provisions and difference any Transferred to income a/c

Date	Particulars	Debit	Credit
31-12-2018	Allowance for sales discount (old).......Dr	$4,500
	Allowance for sales return (old)...........Dr	$3,300
	Allowance for doubtful account (old).....Dr	$12,200
	To Allowance for sales discount (new).......		$3,500
	To Allowance for sales return (new)..........		$4,100
	To Allowance for doubtful accounts (new)..(66000*10/100)		$6,600
	To Income account		$5,800
	(Being old provisions are adjusted with new provisions and balance amount transferred to income account)

Hence after 2 adjustments which is above mentioned earlier then accounts receivable to be changed accordingly so

Particulars	Amount
As on 31-12-2018
Accounts receivable	$91,000
Less: Bad debt written off	$4,400
Net amount	$86,600
Less: Provisions(new)-
For discount	$3,500
For sales return	$4,100
For allowances	$6,600
Net accounts receivable	$72,400

Hence the SFP on accounts receivable as on 31-12-2018 is $72400