Question

1. Explain the importance of each of the special journals and what, if any, unique characteristics can be identified.

2. What method of accounting for uncollectible accounts is generally required for financial accounting purposes?

3. Describe the steps to follow when using the allowance method to account for uncollectible expenses.

4. Describe the process followed when estimating bad debt expense under the percentage of sales method.

5. Describe the process followed when estimating uncollectible accounts under the percentage (aging) of receivables method.

Answer 1

1.Explain the importance of each of the special journals and what, if any, unique characteristics can be identified

Special Journals: Many of the large companies whose companies having large routine transactions using the special journals for writing in a single line, which is very important for a large company having routine transactions

Type of Special Journals: Sales Journal, Cash Receipt Journal, Purchase Journal, Cash payment journal, These are journals which have routine transactions in the companies and A single line entry is sufficient to record a transactions, moreover if a company have frequent sales returns or purchase returns , the company can maintain the sales return journals and purchase journals too..

Unique characteristic is a Routine Transactions of unique identity.

Importance: It help in Time saving as less entry,   Help in detailed recording with just one line entry,I.e if sales is taken we can just need to enter as Party Name if it is Credit otherwise write as cash is sufficient, help in reduction in errors, Fraud detection, Increase efficiency of worker due to single line entry, Helping reducing in expenses.

2.What method of accounting for uncollectible accounts is generally required for financial accounting purposes?

Companies mostly follow the Allowance method as it is meet the Matching Principle and Fulfils the US GAAP

3.Describe the steps to follow when using the allowance method to account for uncollectible expenses.

Steps to be followed:

Pass an entry to recognise doubtful or uncollectible expense by estimating by way of aging method(also called Balance Sheet Approach) or % of sales method(Income Statement Approach)

At Year Beginning

Uncollectible Accounts Expense    Dr          XXXX

            Allowance for doubtful Accounts                        XXXX

At Year End

Allowance for doubtful accounts Dr           XXXX

              Accounts Receivable                                       XXXX

4. Describe the process followed when estimating bad debt expense under the percentage of sales method.

Under the sales Method, Estimated bad debt are made based on total credit sales for each period , Here we determine that some % of credit sales to be uncollectible, This is determined based on past results and economic conditions

5. Describe the process followed when estimating uncollectible accounts under the percentage (aging) of receivables method.

Under This Aging Method, Percentage of accounts receivable in each age group is considered to be uncollectible. The Percentage of each account group is applied to total of that each account group and Summation of the total amount of each of total amount which is obtained by using Percentage of each group is the amount of estimated uncollectible amount