Question

Great Outdoors Ltd sells outdoor furniture settings on credit. The accounting records at 30 June 2019 reveal the following. Ignore GST.

Credit sales (for year)		$1,113,000
Credit sales returns and allowances (for year)		94,000
Accounts receivable (balance 30 June 2019)		339,500
Allowance for doubtful debts (credit balance 30 June 2019)		1,500

In the past, the company's yearly bad debts expense had been estimated at 2% of net credit sales revenue. It was decided to compare the current method with an ageing of the accounts receivable method. The following analysis was obtained with respect to the accounts receivable:

			Balance		% estimated uncollectable
Accounts not yet due			$182,600		1/2
Accounts overdue:	10–30 days		63,400		2
	31–60 days		45,800		10
	61–120 days		26,400		25
	121 days and over		21,300		40
			$339,500

A.

Prepare the journal entries to adjust the allowance for doubtful debts at 30 June 2019 under:

1.		the net credit sales method
2.		the ageing of accounts receivable method.

(Enter debit entries first, followed by credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275.)

Answer 1

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