Question

Problem 2:

Ignore GST for this problem. As at 30 June 2016, the end of its financial year, Oscar Ltd reported the following information on its balance sheet:

Accounts receivable Less: Allowance for doubtful accounts

$1,020,000 60,000

During the next financial year, the business had the following totals related to receivables. You may assume that all events were correctly journalised and posted.

1. 2. 3. 4. 5. 6.

Sales on account Sales discounts Sales returns and allowances Cash collected on accounts receivable Write-offs of accounts receivable Recovery of receivables previously written off as uncollectable

$2,670,000 10,000 30,000 2,300,000 65,000 20,000

Required:

(a)   Enter the 1 July 2016 balances in Accounts Receivable and Allowance for Doubtful Accounts in “T” accounts. Re-create the postings for the year to the two “T” accounts, cross referencing with the opposite account name, e.g., for a cash collection from a customer on account, the debit posting to the Cash account would have a cross reference to Accounts Receivable on the left of the dollar figure.

(b)   Prepare the adjusting journal entry required on 30 June 2017, assuming that it is estimated that the recoverable amount of accounts receivable on that date is $1,250,000.

     (c)    Use a residual analysis to justify the AJE you prepared in (b) above.

Answer 1

	Accounts receivable Account
	Particulars	Debit Amount	Particulars	CreditAmount
	To Balance b/d (Given)	10,20,000.00	By Sales discounts	10,000.00
	To Sales	26,70,000.00	By Sales returns and allowances	30,000.00
	To allowance for doubtful accounts	20,000.00	By Cash collected	23,00,000.00
			By Allowance for doubtful accounts	65,000.00
			By cash from previously written off	20,000.00
			By Balance c/d (Bal.fig)	12,85,000.00
		37,10,000.00		37,10,000.00
	Allowance for doubtful accounts
	Particulars	Debit Amount	Particulars	CreditAmount
	To Accounts receivable	65,000.00	By Bal b/d	60,000.00
	To Bal c/d	15,000.00	By Accounts receivable	20,000.00
		80,000.00		80,000.00
Journal entry
	Bank A/c……………………Dr	12,50,000.00
	Allowance for doubtful accounts A/c…………….Dr	35,000.00
	To Accounts receivable A/c		12,85,000.00
	(Being estimated that the recoverable amount of accounts receivable is $1,250,000)