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a. Show the journal entry to record the uncollectible accounts. b. How much will the balance sheet show as the net realizable value of the accounts receivable

a. Show the journal entry to record the uncollectible accounts. b. How much will the balance sheet show as the net realizable value of the accounts receivable

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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### Understanding Uncollectible Accounts in Accounting: A Case Study of Kids-At-Play #### Scenario Overview Kids-At-Play is a toy store that began its operations this year. At the end of its first year, the store had accounts receivable totaling $50,000. However, the store manager estimates that $1,500 of those receivables will not be collected. #### a. Recording Uncollectible Accounts **Journal Entry Requirement:** To account for the estimated uncollectibles, we need to make an appropriate journal entry. The journal entry to record uncollectible accounts generally includes a debit to the Bad Debt Expense account and a credit to the Allowance for Doubtful Accounts. **Journal Entry Example:** ``` Date | Account Titles | Debit ($) | Credit ($) -----------|-----------------------------------|-----------|------------ | Bad Debt Expense | 1,500 | | Allowance for Doubtful Accounts | | 1,500 ``` This entry recognizes the expected future loss from uncollectible receivables as an expense in the current period and reduces the value of the accounts receivable. #### b. Net Realizable Value **Balance Sheet Presentation:** The net realizable value of the accounts receivable is calculated as the total accounts receivable minus the allowance for doubtful accounts. **Calculation:** Accounts Receivable = $50,000 Allowance for Doubtful Accounts = $1,500 Net Realizable Value of Accounts Receivable = Accounts Receivable - Allowance for Doubtful Accounts Net Realizable Value of Accounts Receivable = $50,000 - $1,500 = $48,500 Hence, the balance sheet will show $48,500 as the net realizable value of the accounts receivable. --- This example sheds light on the importance of accounting for uncollectible accounts to present a more accurate financial position. Understanding this process is crucial for maintaining the integrity of financial statements.
Transcribed Image Text:### Understanding Uncollectible Accounts in Accounting: A Case Study of Kids-At-Play #### Scenario Overview Kids-At-Play is a toy store that began its operations this year. At the end of its first year, the store had accounts receivable totaling $50,000. However, the store manager estimates that $1,500 of those receivables will not be collected. #### a. Recording Uncollectible Accounts **Journal Entry Requirement:** To account for the estimated uncollectibles, we need to make an appropriate journal entry. The journal entry to record uncollectible accounts generally includes a debit to the Bad Debt Expense account and a credit to the Allowance for Doubtful Accounts. **Journal Entry Example:** ``` Date | Account Titles | Debit ($) | Credit ($) -----------|-----------------------------------|-----------|------------ | Bad Debt Expense | 1,500 | | Allowance for Doubtful Accounts | | 1,500 ``` This entry recognizes the expected future loss from uncollectible receivables as an expense in the current period and reduces the value of the accounts receivable. #### b. Net Realizable Value **Balance Sheet Presentation:** The net realizable value of the accounts receivable is calculated as the total accounts receivable minus the allowance for doubtful accounts. **Calculation:** Accounts Receivable = $50,000 Allowance for Doubtful Accounts = $1,500 Net Realizable Value of Accounts Receivable = Accounts Receivable - Allowance for Doubtful Accounts Net Realizable Value of Accounts Receivable = $50,000 - $1,500 = $48,500 Hence, the balance sheet will show $48,500 as the net realizable value of the accounts receivable. --- This example sheds light on the importance of accounting for uncollectible accounts to present a more accurate financial position. Understanding this process is crucial for maintaining the integrity of financial statements.
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