Question

Adham Sdn. Bhd. accounts for its uncollectible accounts using the allowance method. The company reported the following account balances at 31 December 2017.

	RM
Accounts receivable	250,000
Less: Allowance for doubtful accounts	12,500

During the year 2017, the company had the following transactions related to receivables.

	RM
1.Credit sales	600,000
3.Collections of accounts receivable	680,000
4.Write-offs of accounts receivable	10,800
5.Recovery of bad debts previously written off	3,000

Required:

a) Journalise transactions 1 - 5 above.

b) Post the entries to the two accounts: Accounts receivable and Allowance for doubtful account.

c) Record the bad debt expense for 2017 (in T-account) under each of the following independent assumptions:

i. The company estimates its bad debt expense based on 5% of outstanding account receivable balance.

ii. The company bad debt estimate is 1% of its credit sales.

d) What is the net realisable value of Accounts Receivable at 31 December 2017 under assumption   (i) above.

Answer 1

a) Journal entries:
date	Accounts Titles	Debit $	Credit $
1	AR	600000
	Sales		600000
	(credit sales)
2	Cash	680000
	AR		680000
	(cash collection)
4	Allowance for doubtful accounts	10800
	AR		10800
	(written off AR)
5	AR	3000
	Allowance for doubtful accounts		3000
	(Recovery of B/D)
	Cash	3000
	AR		3000
	(recovery of AR)
T-ACCOUNTS:
ACCOUNTS RECEIVABLE:
OB	250000	cash	680000
sales	600000	Allowance	10800
Allow.	3000	cash	3000
		CB	159200
Total	853000	Total	853000
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
AR	10800	OB	12500
CB	4700	AR	3000
c) Journal entries:
date	Accounts Titles	Debit $	Credit $
i	Bad Debts	3260
	Allowance for doubtful accounts		3260
	(159200*5%= 7960 - 4700 = 3260)
ii	Bad Debts	1300
	AR		1300
	(600000*1%= 6000 - 4700 = 1300)
d) The net realisable value of AR at 31/12/17 under Assump.(i) is 159200 - 7960 = $151240