### Understanding Journal Entries in AccountingJournal entries are an essential part of the accounting process where all financial transactions of a business are recorded. Each transaction involves at least two accounts and follows the double-entry accounting system - for every debit in one account, there is an equal and opposite credit in another.#### Example Journal Entry ScenariosLet’s explore two scenarios of journal entries from a business perspective.#### Scenario 1: Receiving Cash Payment for Accounts ReceivableThe company has received $670,000 in cash as payment for accounts receivable. Below is the process to record this transaction:1. Identify the accounts involved: - Cash Account (Asset) - Accounts Receivable (Asset)2. Determine the nature of each account increase or decrease: - Cash Account will increase (Debit) - Accounts Receivable will decrease (Credit)##### Journal Entry Table:| Transaction | Account | Debit | Credit ||-------------|-------------------|-----------|-----------|| c. | Cash | $670,000 | || | Accounts Receivable| | $670,000 |- **Action Steps:** - Enter the debit for the Cash account. - Enter the credit for the Accounts Receivable account. - Record the entry by pressing "Record entry".#### Scenario 2: Adjusting Accounts for Uncollectible ReceivablesAt the end of the accounting period, the business must adjust its books for estimated uncollectible accounts. On December 31, the company estimated that 1.50% of its accounts receivable will be uncollectible.1. Identify the accounts involved: - Bad Debt Expense (Expense) - Allowance for Doubtful Accounts (Contra-Asset)2. Calculate the estimated uncollectible amount: - For instance, if the Accounts Receivable balance is $1,000,000, the uncollectible amount is $1,000,000 * 1.50% = $15,000.3. Determine the nature of each account increase or decrease: - Bad Debt Expense will increase (Debit) - Allowance for Doubtful Accounts will increase (Credit)##### Journal Entry Table:| Transaction | Account | Debit | Credit ||-------------|------------------------------|---------|----------|| d. | Bad Debt Expense | $15,000 | || | Allowance for Doubt ## Liang Company: Journal Entries for Year 1 and Year 2Liang Company began operations in Year 1. During its first two years, the company completed a number of transactions involving sales on credit, accounts receivable collections, and bad debts. These transactions are summarized as follows.### Year 1 Transactions:- **a.** Sold $1,354,500 of merchandise on credit (had cost $983,300), terms n/30.- **b.** Wrote off $20,200 of uncollectible accounts receivable.- **c.** Received $670,000 cash in payment of accounts receivable.- **d.** In adjusting the accounts on December 31, the company estimated that 1.50% of accounts receivable would be uncollectible.### Year 2 Transactions:- **e.** Sold $1,561,900 of merchandise (had cost $1,258,400) on credit, terms n/30.- **f.** Wrote off $33,800 of uncollectible accounts receivable.- **g.** Received $1,195,000 cash in payment of accounts receivable.- **h.** In adjusting the accounts on December 31, the company estimated that 1.50% of accounts receivable would be uncollectible.### Required:Prepare journal entries to record Liang's Year 1 and Year 2 summarized transactions and its year-end adjustments to record bad debts expense. (The company uses the perpetual inventory system, and it applies the allowance method for its accounts receivable.)**Note: Round your intermediate calculations to the nearest dollar.**### Year 1 Journal Entries:1. **a(1).** Sold $1,354,500 of merchandise on credit (terms n/30): - **General Journal:** - Debit: Accounts Receivable $1,354,500 - Credit: Sales Revenue $1,354,500 - **Explanation:** Record the sale of merchandise on credit.2. **a(2).** Record the cost of goods sold, $983,300: - **General Journal:** - Debit: Cost of Goods Sold $983,300 - Credit: Inventory $983,300 - **Explanation:** Record the cost of merchandise sold.3. **b.** Wrote off $20,200 of uncollectible accounts rece

Journal Entries -Journal Entries are the records of the transactions entered into by the company…

Liang Company began operations in Year 1. During its first two years, the company completed a number of transactions involving sales on credit, accounts receivable collections, and bad debts. These transactions are summarized as follows. Year 1 a. Sold $1,354,500 of merchandise on credit (that had cost $983,300), terms n/30. b. Wrote off $20,200 of uncollectible accounts receivable. c. Received $670,000 cash in payment of accounts receivable. d. In adjusting the accounts on December 31, the company estimated that 1.50% of accounts receivable would be uncollectible. Year 2 e. Sold $1,561,900 of merchandise (that had cost $1,258,400) on credit, terms n/30. f. Wrote off $33,800 of uncollectible accounts receivable. g. Received $1,195,000 cash in payment of accounts receivable. h. In adjusting the accounts on December 31, the company estimated that 1.50 % of accounts receivable would be uncollectible. Required: Prepare journal entries to record Liang's Year 1 and Year 2 summarized transactions and its year-end adjustments to record bad debts expense. (The company uses the perpetual inventory system, and it applies the allowance method for its accounts receivable.) Note: Round your intermediate calculations to the nearest dollar. Wrote off $20,200 of uncollectible accounts receivable.

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q