Question

(Accounts receivable and uncollectible accounts—aging of receivables method)

On December 31, 2019, Ajacks Company reported the following information in its financial statements:

Accounts receivable	$1,193,400
Allowance for doubtful accounts	81,648
Bad debts expense	80,448

During 2020, the company had the following transactions related to receivables:

a. Sales were $10,560,000, of which $8,448,000 were on account.

b. Collections of accounts receivable were $7,284,000.

c. Writeoffs of accounts receivable were $78,000.

d. Recoveries of accounts previously written off as uncollectible were $8,100. (Note that this amount is not included in the collections referred to in item b above.)

Required

1. Prepare the journal entries to record each of the four items above.
2. Set up T accounts for the Accounts Receivable and the Allowance for Doubtful Accounts and enter their January 1, 2020, balances. Post the entries from part “a” and calculate the new balances in these accounts.
3. Prepare the journal entry to record the bad debts expense for 2020. Ajacks Company uses the aging of accounts receivable method and has prepared an aging schedule, which indicates that the estimated value of the uncollectible accounts as at the end of 2020 is $93,000.
4. Show what would be presented on the statement of financial position as at December 31, 2020, related to accounts receivable.

Answer 1

The journal entries to record each of the four items

No.	Accounts Title	Debit	Credit
a.	Cash	2,112,000
	Accounts receivable	8,448,000
	Sales		10,560,000
	(For sale made during 2020)
b.	Cash	7,284,000
	Accounts receivable		7,284,000
	(For collection made against Account receivable)
c.	Allowance for doubtful accounts	78,000
	Accounts receivable		78,000
	(For write off debtors during the year)
d.	Cash	8,100
	Allowance for doubtful accounts		8,100
	(Collection against already write off)

T Shape account:

Accounts Receiaveble
Debit	Amount in $	Credit	Amount in $
Opening Balance	1,193,400	Cash	7,284,000
Sales	8,448,000	Allowance for doubtful acc.	78,000
		Closing Balance	2,279,400
Total	9,641,400	Total	9,641,400
Allowance for doubtful accounts
Debit	Amount in $	Credit	Amount in $
Accounts receivable	78,000	Opening Balance	81,648
Closing Balance	93,000	Cash	8,100
		Bad-debts Expense	81,252
		(Balancing figure)
Total	171,000	Total	171,000

Working:

Bad-debts Expense Calculation
Closing Allowance for doubtful accounts required	93,000
Less: Opening Balance	(81,648)
Add: bad-debts during the year	78,000
Less: Bad-debts reverse	(8,100)
Bad-debts Expense	81,252

Entry:

Accounts Title	Debit	Credit
Bad-debts Expense	81,252
Allowance for doubtful accounts		81,252
(For creating provision)

Presentation in Financial statement:

Income Statement:
Bad-debts Expense	81,252
Balance Sheet:
Under Current Assets:
Accounts receivable	2,279,400
Under Current Liabilities:
Allowance for doubtful accounts	93,000