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College Accounting (Book Only): A ...

13th Edition
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ISBN: 9781337280570

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BuyFindarrow_forward

College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570
Textbook Problem

Hardy’s Landscape Service’s total revenue on account for 2018 amounted to $273,205. The company, which uses the allowance method, estimates bad debts at ½ percent of total revenue on account.

Required

Journalize the following selected entries:

2012

Dec. 12    Record services performed on account for E. E. Morton, $245.

31    Record the adjusting entry for Bad Debts Expense.

31    Record the closing entry for Bad Debts Expense.

2013

Feb. 18    Write off the account of E. E. Morton as uncollectible, $245.

Check Figure

Adjusting entry amount,

$1,366.03

To determine

Prepare the journal entries for HL Services.

Explanation

Allowance method of accounting for bad debts expense: This is the accounting method used to estimate the bad debts based on an estimated percentage of credit sales, and recognize the bad debts expense in the same period the products are sold on account (period in which accounts receivables is created for).

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

  • Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
  • Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

Prepare the journal entries for HL Services.

Transaction on December 12, 2012:

Date Account Titles and Explanation Post Ref. Debit ($) Credit ($)
2012        
December 12 Accounts Receivable   245  
      Income from Services     245
    (Record services performed on account)      

Table (1)

Description:

  • Accounts Receivable is an asset account. The amount is increased because amount to be received increased, and an increase in asset is debited.
  • Income from Services is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Income from Services account is credited.

Transaction on December 31, 2012 (adjusting entry):

Date Account Titles and Explanation Post Ref. Debit ($) Credit ($)
2012        
December 31 Bad Debts Expense   1,366.03  
       Allowance for Doubtful Accounts     1,366.03
    (Record uncollectible accounts expense)      

Table (2)

Description:

  • Bad Debts Expense is an expense account. Since expenses and losses decrease the equity and an increase in equity is debited, so, Bad Debts Expense account is debited.
  • Allowance for Doubtful Accounts is a contra-asset account to Accounts Receivable account...

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