ACC 100 Chapter Notes - Chapter 7: Accounts Receivable, Financial Statement, Current Liability

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4 Dec 2017

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Accounts receivable: define accounts receivable, allowance for doubtful accounts, and bad debt expense. Explain which elements are they in and explain why they belong there. Accounts receivable an asset account that records the future right of a business to collect money from customers; it is owned, brings future value, and is incurred in the past. Allowance for doubtful accounts a contra-asset account that records the amount of accounts receivable that the business estimates they will never collect in cash. Bad debt expense an expense account that records the cost of selling for credit: explain why businesses sell on credit and what the benefits and drawbacks (advantages and disadvantages) are. Businesses sell on credit because their competitors do and if they choose not to, they will lose a portion of the market. The advantage of selling on credit is it allows the business to remain competitive.

Related Questions

A customer of Exquisite Flooring recently filed for bankruptcy protection two months ago, leading the credit manager of Exquisite Flooring to conclude that the company would never collect the balance of $2,800 owed by the customer to our company.

21.

Required information

Use the information above to answer the following question. Which of the following journal entries would be made by Exquisite Flooring to record the write-off of the customer's Accounts Receivable balance?

Debit Bad Debt Expense and credit Accounts Receivable for $2,800

Debit Sales and credit Accounts Receivable for $2,800

Debit Bad Debt Expense and credit Allowance for Doubtful Accounts for $2,800

Debit Allowance for Doubtful Accounts and credit Accounts Receivable for $2,800

22.

Required information

Use the information above to answer the following question. Suppose that three months after filing bankruptcy, Exquisite Flooring's customer paid its outstanding account balance. Which of the following journal entries would be made to record this transaction?

Debit Cash and credit Sales for $2,800

Debit Cash and credit Allowance for Doubtful Accounts for $2,800

Debit Cash and credit Accounts Receivable for $2,800

Debit Accounts Receivable and credit Allowance for Doubtful Accounts for $2,800; debit Cash and credit Accounts Receivable for $2,800

mauvezebra637

Jan. 19.	Reinstated the account of Arlene Gurley, which had been written off in the preceding year as uncollectible. Journalize the receipt of $2,120 cash in full payment of Arleneâs account.
Apr. 3.	Wrote off the $12,150 balance owed by Premier GS Co., which is bankrupt.
July 16.	Received 30% of the $21,800 balance owed by Hayden Co., a bankrupt business, and wrote off the remainder as uncollectible.
Nov. 23.	Reinstated the account of Harry Carr, which had been written off two years earlier as uncollectible. Recorded the receipt of $3,455 cash in full payment.
Dec. 31.	Wrote off the following accounts as uncollectible (compound entry): Cavey Co., $9,135 ; Fogle Co., $2,715 ; Lake Furniture, $ 6,975 ; Melinda Shryer, $1,970.
Dec. 31.	Based on an analysis of the $1,074,100 of accounts receivable, it was estimated that $46,700 will be uncollectible. Journalize the adjusting entry.

Required:

1. Record the January 1 credit balance of $44,500 in a T account presented below in requirement 2b for Allowance for Doubtful Accounts.

2. a. Journalize the transactions. If an amount box does not require an entry, leave it blank. Note: For the December 31 adjusting entry, assume the $1,074,100 balance in accounts receivable reflects the adjustments made during the year.

Jan. 19-reinstate	Accounts Receivable-Arlene Gurley
	Allowance for Doubtful Accounts
Jan. 19-collection	Cash
	Accounts Receivable-Arlene Gurley
Apr. 3	Allowance for Doubtful Accounts
	Accounts Receivable-Premier GS Co.
July 16	Cash
	Allowance for Doubtful Accounts
	Accounts Receivable-Hayden Co.
Nov. 23-reinstate	Accounts Receivable-Harry Carr
	Allowance for Doubtful Accounts
Nov. 23-collection	Cash
	Accounts Receivable-Harry Carr
Dec. 31-write-off	Allowance for Doubtful Accounts
	Accounts Receivable-Cavey Co.
	Accounts Receivable-Fogle Co.
	Accounts Receivable-Lake Furniture
	Accounts Payable-Melinda Shryer
Dec. 31-adjusting	Bad Debt Expense
	Allowance for Doubtful Accounts

Feedback

Set up T accounts.
Recall that under the allowance method, the entry to write off an account debits Allowance for Doubtful Accounts and credits Accounts Receivable.
In such cases where an account receivable that has been written off is later collected, the account is reinstated by an entry that reverses the write-off entry. Then record the receipt of cash as payment for the account.
The amount of bad debt expense is affected by the balance in the allowance account.

Learning Objective 4.

2. b. Post each entry that affects the following T accounts and determine the new balances:

Allowance for Doubtful Accounts
Apr. 3		Jan. 1 Balance
July 16		Jan. 19
Dec. 31		Nov. 23
		Dec. 31 Unadjusted Balance
		Dec. 31 Adjusting Entry
		Dec. 31 Adjusted Balance

Bad Debt Expense

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Learning Objective 4.

3. Determine the expected net realizable value of the accounts receivable as of December 31 (after all of the adjustments and the adjusting entry).
$

4. Assuming that instead of basing the provision for uncollectible accounts on an analysis of receivables, the adjusting entry on December 31 had been based on an estimated expense of Â½ of 1% of the sales of $6,630,000 for the year, determine the following:

a. Bad debt expense for the year.
$

b. Balance in the allowance account after the adjustment of December 31.
$

c. Expected net realizable value of the accounts receivable as of December 31 (after all of the adjustments and the adjusting entry).
$

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Teddy Company began operations on January 1, 20X1. The companyhas an accounts receivable balance of $426900 at the end of itsaccounting period on December 31, 20X1. This balance includes somepast due accounts. Based on industry averages, Teddy estimates that$19420 of the December 31 accounts receivable will becomeuncollectible. At this time, Teddy Company ________ which customeraccounts will become uncollectible. The adjusting entry that TeddyCompany should record for bad debt expense on December 31, 20X1 is:12/31/X1 _____________ DR_________ _____________ CR__________ Onthe income statement, the Bad Debt Expense will be matched against_______. On the balance sheet, the Allowance for Doubtful Accountswill be _______ the balance in Accounts Receivable. This amount iscalled the _________ and represents the amount that the company________ to collect on its accounts receivable. Teddy Company'sAccounts Receivable and Allowance for Doubtful Accounts on December31, 20X1, before adjusting entries, are shown below. Update theseT-accounts for the adjusting entry for Bad Debt Expense, showingthe balance in Teddy Company's Accounts Receivable and Allowancefor Doubtful Accounts after adjusting entries have been made.Accounts Receivable 12/31/X1 $426900 12/31/X1 ________ Allowancefor Doubtful Accounts 1/1/X1 $0 adjusting entry ______ 12/31/X1______ Determine the amount of Bad Debt Expense that Teddy Companyshould report in its 20X1 income statement and the net realizablevalue of Teddy Company's Accounts Receivable after the adjustingentry is made on December 31, 20X1. Income Statement: Bad DebtExpense $_______ Balance Sheet: Accounts Receivable, Dec. 31, 20X1$_______ Less: Allowance for Doubtful Accounts Net Realizable Valueof Accounts Receivable, Dec. 31, 20X1 $_______ At a(n) ________point in the future, specific customer accounts will be determinedto be uncollectible. At that point in time, the specific accountreceivable is written off by debiting ________ and crediting________. On January 12, 20X2, J. Thorleif's account balance of$5,530 with Teddy Company is determined to be uncollectible.Provide the journal entry to write-off J. Thorleif's accountreceivable on January 12, 20X2: 1/12/X2 ___________ DR_____________________ CR__________ Teddy Company's Accounts Receivable andAllowance for Doubtful Accounts on December 31, 20X1, afteradjusting and closing entries, are shown below. Update theseT-accounts for the write-off of the J. Thorleif account receivable,showing the balance in Teddy Company's Accounts Receivable andAllowance for Doubtful Accounts immediately following thewrite-off. Accounts Receivable 12/31/X1 _________ 1/12/X2__________ 1/12/X2 _________ Allowance for Doubtful Accounts12/31/X1 ___________ 1/12/X2 __________ 1/12/X2 ___________ ExpertAnswer

ACC 100 Chapter Notes - Chapter 7: Accounts Receivable, Financial Statement, Current Liability

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