Chapter 9, Problem 4BPSB

To determine

Concept Introduction:

Allowance method:

Under the Allowance method the estimated bad debts expenses are recorded using the Allowance for doubtful account and the actual bad debts written off using this account. Allowance for doubtful accounts represents the amount of expected bad debts or uncollectable accounts. This account is made as a provision for future bad debts.

To Prepare:

The Journal entries for the given transactions

Answer to Problem 4BPSB

The Journal entries for the given transactions are as follows:

Sherman Co.
Journal Entries
Date	Account titles	Debit	Credit
Year 1
a.	Accounts Receivable	$ 685,350
	Sales Revenue		$ 685,350
	Cost of Goods Sold	$ 500,000
	Merchandise Inventory		$ 500,000
b.	Cash	$ 482,300
	Accounts Receivable		$ 482,300
c.	Allowance for doubtful accounts	$ 9,350
	Accounts Receivable		$ 9,350
d.	Bad Debts Expense	$ 11,287
	Allowance for doubtful accounts		$ 11,287
Year 2
e	Accounts Receivable	$ 870,220
	Sales Revenue		$ 870,220
	Cost of Goods Sold	$ 650,000
	Merchandise Inventory		$ 650,000
f.	Cash	$ 990,800
	Accounts Receivable		$ 990,800
g.	Allowance for doubtful accounts	$ 11,090
	Accounts Receivable		$ 11,090
h.	Bad Debts Expense	$ 9,773
	Allowance for doubtful accounts		$ 9,773

Explanation of Solution

The Journal entries for the given transactions are explained as follows:

Sherman Co.
Journal Entries
Date	Account titles	Debit	Credit
Year 1
a.	Accounts Receivable	$ 685,350
	Sales Revenue		$ 685,350
	(Being merchandise sold on account)
	Cost of Goods Sold	$ 500,000
	Merchandise Inventory		$ 500,000
	(Being merchandise sold)
b.	Cash	$ 482,300
	Accounts Receivable		$ 482,300
	(Being payment received)
c.	Allowance for doubtful accounts	$ 9,350
	Accounts Receivable		$ 9,350
	(Being account written off)
d.	Bad Debts Expense	$ 11,287
	Allowance for doubtful accounts		$ 11,287
	(Being adjustment made for Bad debts Expense)
	Note: Calculation of Bad debts Expense:
	Ending Accounts Receivable (A) (685350-482300-9350)	$ 193,700
	Estimated bad debts (B) = (A*1% )	$ 1,937
	Balance in Allowance for doubtful accounts (C)	$ 9,350	Debit
	Bad debts Expense (B+C)	$ 11,287
Year 2
e	Accounts Receivable	$ 870,220
	Sales Revenue		$ 870,220
	(Being merchandise sold on account)
	Cost of Goods Sold	$ 650,000
	Merchandise Inventory		$ 650,000
	(Being merchandise sold)
f.	Cash	$ 990,800
	Accounts Receivable		$ 990,800
	(Being payment received)
g.	Allowance for doubtful accounts	$ 11,090
	Accounts Receivable		$ 11,090
	(Being account written off)
h.	Bad Debts Expense	$ 9,773
	Allowance for doubtful accounts		$ 9,773
	(Being adjustment made for Bad debts Expense)
	Note: Calculation of Bad debts Expense:
	Ending Accounts Receivable (A) (193700+870220-990800-11090)	$ 62,030
	Estimated bad debts (B) = (A*1% )	$ 620
	Balance in Allowance for doubtful accounts (C) (11090-1937)	$ 9,153	Debit
	Bad debts Expense (B+C)	$ 9,773