Johnson company’s financial year ended on December 31, 2010. All the transactions related to the company’s uncollectible accounts are can be found below: January 15 Wrote off $440 account of Miller Company as uncollectible April 2nd Re-establish the account of Louisa Teller and record the collection of $1,050 as payment in full for her account which had been written off earlier July 31 Received 40% of the $700 balance owed by William John and wrote off the remainder as uncollectible August 15 Wrote off as uncollectible the accounts of Sherwin Company, $1,700 and V. Vasell $2,200 September 26 Received 25% of the $1,140 owed by Grant Company and wrote off the remainder as uncollectible October 16 Received $741 from M. Fuller in full payment of his account which had been written off earlier as uncollectible December 31 Estimated uncollectible accounts expense for the year to be 1.5% of net credit sales of $521,000 The accounts receivable account had a balance of $114,630 and the beginning balance in the allowance for uncollectible accounts was $6,200. Required: Prepare journal entries for each transaction. Prepare the Allowance for Uncollectible and the Accounts Receivable accounts based on the information presented and balance off each account. Prepare the balance sheet extract as at Dec 31 to show the net realizable value for the Accounts Receivable.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Johnson company’s financial year ended on December 31, 2010. All the transactions related to the company’s uncollectible accounts are can be found below:
|
January 15 |
Wrote off $440 account of Miller Company as uncollectible |
|
April 2nd |
Re-establish the account of Louisa Teller and record the collection of $1,050 as payment in full for her account which had been written off earlier |
|
July 31 |
Received 40% of the $700 balance owed by William John and wrote off the remainder as uncollectible |
|
August 15 |
Wrote off as uncollectible the accounts of Sherwin Company, $1,700 and V. Vasell $2,200 |
|
September 26 |
Received 25% of the $1,140 owed by Grant Company and wrote off the remainder as uncollectible |
|
October 16 |
Received $741 from M. Fuller in full payment of his account which had been written off earlier as uncollectible |
|
December 31 |
Estimated uncollectible accounts expense for the year to be 1.5% of net credit sales of $521,000 |
The
Required:
- Prepare
journal entries for each transaction. - Prepare the Allowance for Uncollectible and the Accounts Receivable accounts based on the information presented and balance off each account.
- Prepare the
balance sheet extract as at Dec 31 to show the net realizable value for the Accounts Receivable. - Assume that the aging of accounts receivable method was used by the company and that $7,050 of the accounts receivable as of December 31 were estimated to be uncollectible. You are now required to:
- Determine the amount to be charged to uncollectible expense (show your workings for the computation of this figure).
- Prepare the balance sheet extract to show the net realizable value of the Accounts Receivable as at December 31
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