a) Prepare the journal entries to adjust the Allowance for Doubtful Debts at 30 June 2019 under the following two methods. i. the net credit sales method ii. the ageing of accounts receivable method. b) Prepare ledger account for the Allowance for Doubtful Debts account under both methods mentioned in a), using running balance format. c) Assume that the allowance account had a debit balance of $980 at 30 June 2018, determine the bad debt expense for the year and the balance in the allowance account under ageing method. d) Explain, with reference to your calculation, why the two different methods result in different balances.
InvisiGuard Ltd sells security doors. Majority of its sales are on credit except small amount of cash sales each year. The accounting records at 30 June 2019 reveal the following. Ignore GST.
Credit sales (for the year of 2019) $2,100,000
Cash sales (for the year of 2019) $20,000
Credit sales returns and allowances (for the year of 2019) $80,000
Allowance for doubtful debts (credit balance at 30 June 2019) $2,800
The company’s yearly
accounts receivable.
Age Balance % of estimated uncollectable
Accounts not yet due $351,200 1
Accounts overdue 10-30days $ 92,000 3
31-60days $ 78,000 10
61-120days $40,800 30
121 days and over $31,000 60
Total 593,000
Required:
a) Prepare the
i. the net credit sales method
ii. the ageing of accounts receivable method.
b) Prepare ledger account for the Allowance for Doubtful Debts account under both methods mentioned in a), using running balance format.
c) Assume that the allowance account had a debit balance of $980 at 30 June 2018, determine the bad debt expense for the year and the balance in the allowance account under ageing method.
d) Explain, with reference to your calculation, why the two different methods result in different balances.
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