An analysis of the receivables as at the end of the year of Madeni Limited revealed the following Age Balance – Ksh ‘000 Current 3,400 1 to 30 days 1,200 31 to 60 days 2,700 61 to 90 days 2,300 91 to 120 days 1,400 121 to 180 days 700 181 to 365 days 1,000 Over 365 days 1,300 14,000 From experience, the company estimates that 1% of the current debtors will not pay, 3% of debtors between 1-30 days will not pay, 5% of the debtors between 31-60 days will not pay, 7% of the debtors between 61-90 days will not pay, 10% of the debtors between 91-120 days will not pay, 15% of the debtors between 121-180 days will not pay, 20% of the debtors between 181-365 days will not pay and 50% of the over 365 days old debtors will not pay. Required: a) Using the Aging Method, determine the balance of allowance for doubtful debts as at the end of the year b) Pass the journal entry needed. The beginning balance for the Allowance for Doubtful accounts is Ksh 1,750,000
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.
1. An analysis of the receivables as at the end of the year of Madeni Limited revealed the
following
Age
Balance –
Ksh ‘000
Current 3,400
1 to 30 days 1,200
31 to 60 days 2,700
61 to 90 days 2,300
91 to 120 days 1,400
121 to 180 days 700
181 to 365 days 1,000
Over 365 days 1,300
14,000
From experience, the company estimates that 1% of the current debtors will not pay, 3% of debtors
between 1-30 days will not pay, 5% of the debtors between 31-60 days will not pay, 7% of the
debtors between 61-90 days will not pay, 10% of the debtors between 91-120 days will not pay,
15% of the debtors between 121-180 days will not pay, 20% of the debtors between 181-365 days
will not pay and 50% of the over 365 days old debtors will not pay.
Required:
a) Using the Aging Method, determine the balance of allowance for doubtful debts as at the
end of the year
b) Pass the
accounts is Ksh 1,750,000
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