Slow Running Shoes uses the Aging of receivables method to account for uncollectible accounts. The balance in the Allowance for uncollectible account as at Jan 1st, 2010 was $10,500 (credit) The balance in the Accounts Receivable account as at Jan 1st, 2010 was $133,000. The company completed the following transactions during 2010 and 2011: 2010
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.
Discussion question:
Slow Running Shoes uses the Aging of receivables method to account for uncollectible accounts.
- The balance in the Allowance for uncollectible account as at Jan 1st, 2010 was $10,500 (credit)
- The balance in the
Accounts Receivable account as at Jan 1st, 2010 was $133,000.
The company completed the following transactions during 2010 and 2011:
|
2010 |
|
|
June 10th |
Wrote off the balance of $600 from Manny Miller’s account as uncollectible |
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September 15th |
Re-instated the account of Betty Lou and recorded the collection of $1200 as payment in full for her account which had been written off earlier |
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December 31st |
Recorded the uncollectible account expense based on the aging schedule. The schedule showed that $14,100 of accounts receivable was estimated as uncollectible |
|
December 31st |
Made the closing entry for the uncollectible expense account |
|
2011 |
|
|
Jan 17 |
Sold inventory to Jack Frost, $1100, on account |
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August 15 |
Wrote off as uncollectible the accounts of Barry Semper, $1,500; Maria Jesus $1,400 and Rory Paul $200 |
|
September 26 |
Received 40% of the amount owed by Jack Frost and wrote off the remainder as uncollectible |
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October 16 |
Received 20% of the funds owed from Maria Jesus as part payment of her account which had been written off earlier as uncollectible |
|
December 31 |
The Aging schedule showed an estimated $7500 as uncollectible |
Required:
- Prepare
journal entries for each transaction (No narrations required) - Prepare the Allowance for Uncollectible and the Accounts Receivable accounts based on the information presented and balance off each account.
- Prepare the
balance sheet extracts as at Dec 31 2010 & 2011 to show the net realizable value for the Accounts Receivable. - Assume that the percentage of sales method was used instead by the company and that on December 31st, 2010 5% of 2010 ‘s credit sales are estimated to be uncollectible. Assume Sales for 2010 were 520,000 (60% relates to cash sales) "To be solved"
You are now required to:
- Determine the amount to be charged to the uncollectible expense account. "To be solved"
- (1) Prepare the Allowance for uncollectible account for 2010, using this method "To be solved"
(ii) Prepare the balance sheet extract to show the net realizable value of the Accounts Receivable as at December 31 2010. "To be solved"
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