Question

Question

A.   List two (2) policies a company may adopt to lessen the risk of uncollectible accounts and improve its cashflows.

B. Joseph Corporation a mobile phone wholesaler sells mobile phones to PhoneTech Ltd, a mobile phone retailer on August 1, 2020 for $500 each, the value of the sale is $50,000, with credit terms of 3/10, n/30. Assume the company uses the net method to record accounts receivables.

Required:

a. Prepare the journal entry to record the sale.

b. On August 8, 2020, collection on $15,000 of the sales was received from PhoneTech. Record the necessary journal entry for the cash received.

c. The remaining $35,000 of the sales was collected on August 28, 2020 from Phone Tech. Record the necessary journal entry for the transaction on this date.

Answer 1

A) A company may adopt following policies to reduce the risk of uncollectibles:

1. Only cash, no credit sales.

2. It may offer attractive cash discount if the payment is made within a very short period.

B) Required Journal Entries are as follows:

Date	Accounts	post ref	Debit	Credit
Aug 1	Accounts receivable		50,000
	Sales Revenue			50,000
Aug 8	Cash		14,550
	Discount Expense		450
	Accounts receivable			15000
Aug 28	Cash		35,000
	Accounts Receivable			35000

On August 8 Discount is calculated at 3% on 15,000 as it is received within 10 days.

Hope it helps.