Alpha Security Ltd commenced operations on 1 July 2021. By the end of the first year of operations, the accountant identified that $2,673 (GST Inclusive) of receivables would be uncollectible and wrote these debts off as bad debts using the direct write off method. In addition to reviewing the business’ credit policies, management decided to adopt the allowance method for accounting for bad debts. On this directive, the accountant established an Allowance for Doubtful Debts amounting to $3,940 at 30 June 2022. During the financial year ended 30 June 2023, receivables totalling $3,432 (GST Inclusive) were deemed uncollectible and were written off as bad. Furthermore, $473 (GST Inclusive) was recovered in respect of bad debts previously written off. The total balance of receivables at 30 June 2023 after accounting for bad debts amounted to $120,549 (GST Inclusive, this amount is after the bad debts had been written off). After discussions regarding the level of bad debts after the first year of trading, management decided to increase the allowance for doubtful debts to 4% of receivables at year end. Please include commas in your amounts Required (a) Prepare general journal entries to record all of the transactions. (b) Prepare the Bad Debts Expense account and the Allowance for Doubtful Debts account for 2022 and 2023
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Alpha Security Ltd commenced operations on 1 July 2021. By the end of the first year of operations, the accountant identified that $2,673 (GST Inclusive) of receivables would be uncollectible and wrote these debts off as
In addition to reviewing the business’ credit policies, management decided to adopt the allowance method for accounting for bad debts. On this directive, the accountant established an Allowance for Doubtful Debts amounting to $3,940 at 30 June 2022.
During the financial year ended 30 June 2023, receivables totalling $3,432 (GST Inclusive) were deemed uncollectible and were written off as bad. Furthermore, $473 (GST Inclusive) was recovered in respect of bad debts previously written off. The total balance of receivables at 30 June 2023 after accounting for bad debts amounted to $120,549 (GST Inclusive, this amount is after the bad debts had been written off). After discussions regarding the level of bad debts after the first year of trading, management decided to increase the allowance for doubtful debts to 4% of receivables at year end.
Please include commas in your amounts
Required
(a) Prepare general
(b) Prepare the Bad Debts Expense account and the Allowance for Doubtful Debts account for 2022 and 2023
Step by step
Solved in 4 steps
