Required: a) Prepare all necessary entries related to the above transactions affecting the accounts receivable. (Observe the correct way of journalizing, use appropriate account title.) b) Prepare the adjustment for doubtful accounts expense at the year end if the entity uses the percentage of accounts receivable method consistently. (Show complete solutions in good form.)
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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.
At the beginning of the current year, Nikka Company reported the following information:
Accounts receivable P1,800,000
Allowance for doubtful accounts 72,000
The following summary transactions affecting accounts receivable occurred during the current year:
Sales – all on account 2/10, 1/15, n/60 P8,935,000
Cash received from customers 8,000,000
The cash received from customers including the following:
Customers paying within the 10 day discount period 4,410,000
Customers paying within the 15 day discount period 2,475,000
Recovery of accounts written off 15,000
Customers paying beyond the discount period ?
Accounts receivable written off as worthless 55,000
Credit memorandum for sales return 30,000
The entity follows the percentage of accounts receivable consistently for the allowance for doubtful
account.
Required:
a) Prepare all necessary entries related to the above transactions affecting the accounts
receivable. (Observe the correct way of journalizing, use appropriate account title.)
b) Prepare the adjustment for doubtful accounts expense at the year end if the entity uses the
percentage of accounts receivable method consistently. (Show complete solutions in good
form.)
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