Question

Accounts Receivable Journal Entries

3. On January 1 of the current year, Neptune, Inc. had the following accounts on its books:

Accounts Receivable                                                            $240,000 (debit)

Allowance for Doubtful Accounts                                      $8,000 (credit)

During this year, credit sales were $1,200,000 and collections on account were $1,160,000.

Required:

a. Prepare general journal entries for the following transactions that occurred during the year:

(1) Wrote off N. Purcell’s account, $6,800.

(2) Wrote off J. Stein’s account, $2,400.

(3) J. Stein, who is in bankruptcy, paid $800 in final settlement of the account written off in transaction

(2). This amount is not included in the $1,160,000 collections.

(4) On December 31, estimated the year’s bad debts expense at 1% of credit sales.

b. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear on the year-end balance sheet.

Answer 1

S.No.	Account Name	Debit	Credit
1.	Bad Debts	6800
	N. Purcell's Account		6800
	(Being N. Purcell's account written off)
	Allowance for Doubtful Debts	6800
	Bad Debts		6800
	(Being bad debts adjusted against allowance account)
2.	Bad Debts	2400
	J. Stein's Account		2400
	(Being J.Stein's account written off)
	Allowance for Doubtful Debts	1200
	Bad Debts		1200
	(Being bad debts adjusted against allowance account)
3.	Cash/Bank	800
	Bad Debts Recovered Account		800
	(Being bad debts recovered recorded)
4.	Bad Debts	12000
	Allowance for Bad Debts		12000
	(Being estimated bad debts recorded)

Estimated Bad Debts Expense = 1200000 × 1/100 = 12000

Year end balances :

Accounts Receivable :

Beginning Balance	240000
Add : credit sales made during the year	1200000
Less : cash collected during the year	(1160000)
Less : bad debts	(9200)
Ending balance as on balance sheet date	270800

Allowane for Doubtful Debts :

Beginning Balance	8000
Less : balance written off for point 1	(6800)
Less : balance written off for point 2	(1200)
Add : Allowance made during the year	12000
Ending Balance as on balance sheet date	12000