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11 December, 13:53

During the year ended December 31, 2018, Kelly's Camera Shop had sales revenue of $180,000, of which $90,000 was on credit. At the start of 2018, Accounts Receivable showed a $12,000 debit balance and the Allowance for Doubtful Accounts showed a $620 credit balance. Collections of accounts receivable during 2018 amounted to $70,000.

Data during 2018 follow:

On December 10, a customer balance of $1,600 from a prior year was determined to be uncollectible, so it was written off.

On December 31, a decision was made to continue the accounting policy of basing estimated bad debt losses on 2 percent of credit sales for the year.

Required:

Give the required journal entries for the two events in December.

Show how the amounts related to Accounts Receivable and Bad Debt Expense would be reported on the balance sheet and income statement for 2018.

On the basis of the data available, does the 2 percent rate appear to be reasonable?

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Answers (1)
  1. 11 December, 15:04
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    (a) On December 10, a customer balance of $1,400 from a prior year was determined to be uncollectible

    Dr Sales Returns and Allowances $ 1,400

    Cr Accounts Receivable $ 1,400

    (b) On December 31, a decision was made to continue the accounting policy of basing estimated bad debt losses on 2 percent of credit sales for the year.

    Dr Bad Debt Expense $ 752

    Cr Allowance for Uncollectible Accounts $ 752

    Explanation:

    Initial Balance

    Dr Accounts Receivable $ 12,000

    Cr Allowance for Uncollectible Accounts $ 500

    Kelly's Camera Shop had sales revenue, of which $60,000 was on credit

    Dr Accounts Receivable $ 60,000

    Cr Sales $ 60,000

    Collections of accounts receivable during 2018 amounted to $58,000.

    Dr Cash $ 58,000

    Cr Accounts Receivable $ 58,000

    (a) On December 10, a customer balance of $1,400 from a prior year was

    determined to be uncollectible, so it was written off.

    Dr Allowance for Uncollectible Accounts $ 1,400

    Cr Accounts Receivable $ 1,400

    (b) On December 31, a decision was made to continue the accounting policy of basing estimated bad debt losses on 2 percent of credit sales for the year.

    Dr Bad Debt Expense $ 752

    Cr Allowance for Uncollectible Accounts $ 752
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