Question

Aussi World Ltd sells outdoor furniture settings. The company is not registered for GST. The accounting records at 30 June 2019 reveal the following balances:

                                                                                                                    $

Credit sales (for year)                                                                         1,070,000

Credit sales returns & allowances                                                           90,000

Accounts receivable                                                                               323,500

Allowance for doubtful debts (credit balance)                                         1,500

In the past, the company’s yearly bad debts expense had been estimated at 2% of credit sales. It was decided to compare that method with an ageing of the accounts receivable method. The following analysis was obtained in relation to the accounts receivable:

                                                                                                % estimate

                                                                        Balance           uncollectable

Accounts not yet due                                     $173,600               1.5

Accounts overdue:      10-30 days                      60,000               3

                                    31-60 days                      42,000             10

                                    61-120 days                    26,400             25

                                    121 days and over          21,500             40

                                                                        323,500

Required:

Prepare journal entries for the following (ignore narrations):

1. Write off $550 owing from J. Brooks as uncollectible. [1.5 marks]
2. Record collection of $1,500 in full settlement of J. Fuller’s account, previously written off. [3 marks]
3. Received 40% of the $900 balance owing by W. Chan and wrote off the remainder as uncollectible. [2.5 marks]
4. Assume the business uses the percentage of sales method to estimate uncollectible accounts, prepare the journal entry for the year ended 30 June 2019. [3 marks]
5. Show how Accounts Receivable would be reported in the balance sheet at 30 June 2019. [4 marks]
6. Assume the same facts except that instead of using the percentage of sales method to estimate uncollectible accounts, the business uses the ageing method. Prepare the journal entry for the year ended 30 June 2019 (show workings). [4 marks]

Answer 1