InvisiGuard Ltd sells security doors. Majority of its sales are on credit except small amount of cash sales each year. The accounting records at 30 June 2019 reveal the following. Ignore GST. Credit sales (for the year of 2019) Cash sales (for the year of 2019) Credit sales returns and allowances (for the year of 2019) Accounts receivable (balance at 30 June 2019) Allowance for doubtful debts (credit balance at 30 June 2019) $2,100,000 20,000 80,000 593,000 2,800 The company's yearly bad debts expense had been estimated at 2.5% of net credit sales revenue in the past. The management of InvisiGuard Ltd has decided to compare the current method with an ageing of accounts receivable method. The following analysis was obtained with respect to the accounts receivable. Balance % of estimated uncollectable $351,200 92,000 78,000 40,800 31,000 593,000 Accounts not yet due 10 - 30 days 31 - 60 days 61 - 120 days 121 days and over Accounts overdue 3 10 30 60 Total Required: a) Prepare the journal entries to adjust the Allowance for Doubtful Debts at 30 June 2019 under the following two methods. (s. i. the net credit sales method ii. the ageing of accounts receivable method. b) Prepare ledger account for the Allowance for Doubtful Debts account under both methods mentioned in a), using running balance format. (2 c) Assume that the allowance account had a debit balance of $980 at 30 June 2018, determine the bad debt expense for the year and the balance in the allowance account under ageing method. (. n. d) Explain, with reference to your calculation, why the two different methods result in different balances. (7
InvisiGuard Ltd sells security doors. Majority of its sales are on credit except small amount of cash sales each year. The accounting records at 30 June 2019 reveal the following. Ignore GST. Credit sales (for the year of 2019) Cash sales (for the year of 2019) Credit sales returns and allowances (for the year of 2019) Accounts receivable (balance at 30 June 2019) Allowance for doubtful debts (credit balance at 30 June 2019) $2,100,000 20,000 80,000 593,000 2,800 The company's yearly bad debts expense had been estimated at 2.5% of net credit sales revenue in the past. The management of InvisiGuard Ltd has decided to compare the current method with an ageing of accounts receivable method. The following analysis was obtained with respect to the accounts receivable. Balance % of estimated uncollectable $351,200 92,000 78,000 40,800 31,000 593,000 Accounts not yet due 10 - 30 days 31 - 60 days 61 - 120 days 121 days and over Accounts overdue 3 10 30 60 Total Required: a) Prepare the journal entries to adjust the Allowance for Doubtful Debts at 30 June 2019 under the following two methods. (s. i. the net credit sales method ii. the ageing of accounts receivable method. b) Prepare ledger account for the Allowance for Doubtful Debts account under both methods mentioned in a), using running balance format. (2 c) Assume that the allowance account had a debit balance of $980 at 30 June 2018, determine the bad debt expense for the year and the balance in the allowance account under ageing method. (. n. d) Explain, with reference to your calculation, why the two different methods result in different balances. (7
College Accounting, Chapters 1-27
23rd Edition
ISBN:9781337794756
Author:HEINTZ, James A.
Publisher:HEINTZ, James A.
Chapter16: Accounting For Accounts Receivable
Section: Chapter Questions
Problem 2CE: Tonis Tech Shop has total credit sales for the year of 170,000 and estimates that 3% of its credit...
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Concept explainers
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.
Question
Transcribed Image Text:InvisiGuard Ltd sells security doors. Majority of its sales are on credit except small amount of cash
sales each year. The accounting records at 30 June 2019 reveal the following. Ignore GST.
Credit sales (for the year of 2019)
Cash sales (for the year of 2019)
Credit sales returns and allowances (for the year of 2019)
Accounts receivable (balance at 30 June 2019)
Allowance for doubtful debts (credit balance at 30 June 2019)
$2,100,000
20,000
80,000
593,000
2,800
The company's yearly bad debts expense had been estimated at 2.5% of net credit sales revenue in
the past. The management of InvisiGuard Ltd has decided to compare the current method with an
ageing of accounts receivable method. The following analysis was obtained with respect to the
accounts receivable.
Balance
% of estimated uncollectable
$351,200
92,000
78,000
40,800
Accounts not yet due
Accounts overdue
1
10 - 30 days
31 - 60 days
61 - 120 days
121 days and over
10
30
31,000
593,000
60
Total
Required:
a) Prepare the journal entries to adjust the Allowance for Doubtful Debts at 30 June 2019 under the
following two methods. (S.
i. the net credit sales method
ii. the ageing of accounts receivable method.
b) Prepare ledger account for the Allowance for Doubtful Debts account under both methods
mentioned in a), using running balance format. (2
c) Assume that the allowance account had a debit balance of $980 at 30 June 2018, determine the
bad debt expense for the year and the balance in the allowance account under ageing method. (.
n.
d) Explain, with reference to your calculation, why the two different methods result in different
balances. (7
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